What are HRAs and How Do They Impact Small Businesses

On June 13th, 2019, the Department of Health and Human Services released a final ruling calling for a restructure of the current rules of Health Reimbursement Arrangements. This change will go into effect on January 1st, 2020. So, what does this have to do with small businesses? We’re here to explain.

What is an HRA? 

Health Reimbursement Arrangements (HRAs) have been around in some form since the 1960s. Most are used today as a way for the employer to make tax-deductible contributions to their employees. This allows them to fund deductibles and/or other non-covered qualified medical expenses. All of which qualifies as a tax exclusion for the employer. 

Small businesses and the new rule

Businesses have been using HRAs for many years. But there was little oversight and regulations of the HRA marketplace. That was until 2013 and the rulings of the Affordable Care Act, which narrowed the descriptions of HRAs to three versions; group-coverage HRA, stand-alone HRA for one insured, and retiree HRA. Ultimately, this made it very difficult for small businesses to offer HRAs to their employees. 

With the new rule going into effect on January 2020, small business employers will be able to use individual coverage health reimbursement accounts or ICHRAs. These plans allow employers to provide their workers with tax-preferred funds which pay for the cost of health insurance coverage that workers purchase in the individual market, subject to certain conditions.

In fact, the usage projection for the new rule is 800,000 employers nationally will take advantage of this new ruling, and 90 percent of employers with 20 or fewer employees will choose to offer either the Individual Coverage HRA (ICHRA) or the Excepted Benefit HRA (EBHRA)

ICHRAs are great for employers with a traditional health plan who have high percentage of waivers or who want to offer more flexibility and selection to their employees. For small businesses that don’t have a traditional health plan, ICHRAs are a low cost, tax-favored alternative that helps them recruit and retain top-tier talent. 

EBHRAs allow the employee to fund the cost of deductibles and copays. These plans are perfect for employers with a traditional plan who have a high percentage of waivers or would like a low-cost tax-favored alternative that keeps them competitive in the workplace. For employers with a traditional HDHP or CDHP, EBHRAs give more budgetary flexibility and choice of benefit options-creating a defined contribution plan.

Want to learn more about the new HRA ruling? Contact us! We take the complexity out of benefits decisions. 

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