What Size Companies Are Eligible for Health Reimbursement Accounts?
Navigate the nuances of Health Reimbursement Account eligibility, focusing on how company size determines available options.
Health Reimbursement Accounts (HRAs) represent a valuable employer-funded health benefit designed to help employees manage qualified medical expenses. These arrangements allow employers to offer tax-advantaged support for healthcare costs, providing a structured way to reimburse employees for out-of-pocket medical expenses and, in some cases, health insurance premiums. HRAs are not pre-funded accounts; instead, they operate as agreements where employers reimburse employees after eligible expenses are incurred and substantiated. This mechanism provides employers with a predictable cost structure, as funds are only disbursed upon valid claims.
Understanding Different HRA Types
Several types of Health Reimbursement Accounts exist, each designed to serve different employer needs and integrate with various health coverage models. These distinct structures allow businesses to tailor their health benefit offerings.
The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) assists small employers who do not offer a traditional group health plan. It allows businesses to reimburse individual health insurance premiums and other qualified medical expenses. Employees purchase their own individual health coverage, and the employer reimburses them for eligible expenses.
The Individual Coverage Health Reimbursement Arrangement (ICHRA) allows employers of any size to reimburse employees for individual health insurance premiums and other qualified medical expenses. Employees must be enrolled in individual health insurance coverage to receive reimbursements. This type enables employees to choose health plans that best suit their needs.
The Group Health Plan HRA, also known as an Integrated HRA or Group Coverage HRA (GCHRA), works with a traditional group health insurance plan. It covers out-of-pocket expenses like deductibles, copayments, and coinsurance not fully paid by the primary group health plan. This HRA supplements existing coverage and cannot reimburse premiums for the group health plan itself.
Company Size Eligibility for Each HRA Type
Company size plays a significant role in determining which type of Health Reimbursement Account an employer is eligible to offer. Each HRA type has specific regulations regarding the number of employees a business can have. These size distinctions are a primary factor in choosing the most suitable HRA.
The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is available to employers with fewer than 50 full-time equivalent employees (FTEs) in the preceding calendar year. Businesses offering a QSEHRA cannot offer a traditional group health plan concurrently.
The Individual Coverage Health Reimbursement Arrangement (ICHRA) has no employer size limits. It can be offered by employers with one or more W-2 employees. This broad eligibility allows employers of virtually any size to leverage the benefits of an ICHRA.
A Group Health Plan HRA is tied to the existence of a traditional group health plan. Employers offering this HRA must already provide a group health plan to their employees. The HRA’s eligibility is contingent on the employer offering and the employee being enrolled in a primary group health plan.
Additional Eligibility Requirements
Beyond company size, employers must satisfy several other requirements to offer a compliant Health Reimbursement Account. These criteria ensure proper administration and adherence to federal regulations. These requirements apply broadly across different HRA types.
A formal, written HRA plan document is a mandatory requirement for all HRAs. This document outlines the plan’s terms, including eligibility criteria, benefits provided, and reimbursement processes. It must comply with regulations from the Internal Revenue Service (IRS) and the Employee Retirement Income Security Act (ERISA).
HRAs are subject to non-discrimination rules under Internal Revenue Code Section 105. These rules prevent plans from favoring highly compensated individuals regarding eligibility or benefits. Employers must ensure the HRA is offered on the same terms to all eligible employees.
Integration with health coverage is a key requirement. For a QSEHRA, employees must have minimum essential coverage (MEC) to receive tax-free reimbursements. Employees participating in an ICHRA must be enrolled in individual health coverage or Medicare. Group Health Plan HRAs require employees to be enrolled in the employer’s primary group health plan.
HRAs are solely employer-funded, meaning employees cannot contribute their own funds to these arrangements. This employer-only contribution model is a foundational characteristic of all HRA types. This ensures the benefit remains a tax-deductible expense for the employer and generally tax-free for the employee.