If you’re interested in offering a health reimbursement arrangement (HRA) as a health insurance option for your business, you’ve come to the right place. But first, you need to know the difference between an HRA and more specifically, a QSEHRA– which is an HRA for small businesses.
Let’s dive into the difference between a QSEHRA vs. an HRA.
HRA vs. QSEHRA
What Is an HRA, or Health Reimbursement Arrangement?
An HRA stands for Health Reimbursement Arrangement. HRAs are tax-advantaged, employer-funded plans that work by reimbursing employees for their insurance premiums and medical expenses.
So as an employee, are you wondering how to use HRA money? It’s simple with an efficient HRA platform. Employers who offer HRAs set limits on money to spend, then you as an employee pay for medical bills, insurance premiums, etc.
Once paid for, receipts are submitted to the HRA and you’re reimbursed for the payments! Plus, reimbursement dollars received by employees are tax-free.
Employers offering HRAs typically choose between the Qualified Small Employer HRA (QSEHRA) or the Individual Coverage HRA (ICHRA).
HRAs are a great option for employers because of their tax advantages, ease of budget, and flexibility they offer to employees.
What Is a QSEHRA, or Qualified Small Employer Health Reimbursement Arrangement?
When comparing ICHRA vs. QSEHRA, the biggest difference to note is that QSEHRAs are for smaller businesses, and there are limits to stick to. ICHRAs on the other hand have no limits on the size of the company, and there are no annual contribution limits or employee maximums for coverage.
HRA reimbursement rules are in place to make sure the rollout process goes smoothly for the employer and employee. Some rules to note are company size, HRA business owner eligibility, and HRA contribution limits. We’ll get into this in more detail later.
Our HRA guide at Take Command can help you better understand the details of each of these rules before implementing your company’s HRA.
HRA vs. HSA
If you’re learning about HRAs, you’ve likely heard the term HSA, or health savings account. You may be wondering– how do I compare an HRA vs HSA? Or can I have an HRA AND HSA?
HRAs and HSAs are both tax-advantaged tools employees can use to pay for out-of-pocket medical expenses with a set amount of funds.
However, HSAs are funded by both employer and employee, and the employee has immediate access to their account’s money. Often, HSAs come with a debit card for convenience.
HRAs are funded entirely by the employer with no employee contributions, and money is reimbursed after the employee pays their medical bills or premiums.
When considering an HRA vs FSA– a flexible spending account– there are additional considerations. FSAs are accounts that employees put money into so employees can pay for certain out-of-pocket medical expenses. Employers can make contributions to your FSA, but they are not required to do so.
Check out these resources for more information on HRA vs. HSA vs. FSA:
There are pros and cons of HRAs vs. HSAs. Choosing which one is best depends on the size of your business and what health coverage and benefits you’re looking to offer.
Qualified Small Employer Health Reimbursement Arrangement requirements – or QSEHRA reimbursement requirements – need to be met to proceed with offering an HRA to your employees. There are requirements for the employer AND the employee.
- Doctor’s visits
- Medical visit copays
- Dental exams/cleaning
- Necessary medications or medical supplies
For which of the following can funds from a QSEHRA be used?
- Reimbursement for payment of health insurance premiums
- Reimbursement for medical/doctor visits
- Reimbursement for prescription medications
So, what is the source for funding a QSEHRA?
Funding a QSEHRA comes from the employer, and employers set their reimbursement allowance. Employees then pay for their health insurance premiums and other medical expenses. After submitting proof of their health insurance expenses via an uploaded receipt, their employers reimburse them for expenses up to the maximum allowance.
A quick summary of the steps for how to set up a QSEHRA are:
- Design your reimbursement plan
- Create the required legal QSEHRA plan documents using a QSEHRA plan document template
- Review compliance with QSEHRA requirements
- Set a start date for your QSEHRA
- Provide required notices and resources for your employees to buy their own health insurance plans
The steps to set up a QSEHRA will be outlined for your clearly when you work with us at Take Command, and we’re here to help you and your employees along the way.
QSEHRA Limits 2023
We typically see an increase in annual QSEHRA rates due to inflation. Since the beginning of QSEHRAs, there’s been roughly a $100 increase for individuals and a $150-$200 increase for families each year.
QSEHRA contribution limits are required for compliance with your HRA.
The 2023 QSEHRA contribution limits are:
- Individuals $5,850 or ($487.5/month)
- Family $11,800 or ($983.33/month)
The QSEHRA 2023 limits can be compared to QSEHRA limits from 2022 here:
- Individuals $5,450/Annually ($454.16/monthly)
- Family: $11,050/Annually ($920.83/monthly)
As you can see, a slight increase in QSEHRA limits is observed year to year.
For more details on HRA employer contribution limits for 2023, check out the 2023 QSEHRA contribution limits.
Once the employer determines how much to reimburse– up to these contribution limits– they can begin with the QSEHRA setup process.
When setting up a QSEHRA for your company, a legal QSEHRA plan document is an important first step to administering your HRA to your small business.
The QSEHRA plan document for employers is the legal agreement including fiduciaries, effective dates, funding, eligibility requirements, and more.
The QSEHRA plan document for employees summarizes the plan and explains in detail how the employee can use and get the most out of their HRA.
Self-administered QSEHRAs are not recommended due to these important steps and legal requirements. We recommend using an efficient HRA administration platform like Take Command to help ease this process for business owners– and to save them time.
When establishing a QSEHRA, employers, and employees must comply with QSEHRA rules. As mentioned, the QSEHRA limits of 2022 to the QSEHRA limits of 2023 have changed– and they continue to change yearly. So it’s essential to always be aware of contribution limits from year to year.
QSEHRA employer requirements– as mentioned above– include being a “small business” with less than 50 employees. Additionally, employers cannot offer a group plan with a QSEHRA.
QSEHRA requirements for employees include having an individual health insurance plan, and they must submit claims for reimbursement for eligible medical expenses and premiums.
To reiterate– for employees to receive reimbursement from their QSEHRAs, they must be covered by an individual health insurance plan. And all qualified individual health insurance plans must provide QSEHRA Minimum Essential Coverage (MEC) as defined by the IRS.
MEC plans are:
- Major medical plans
QSEHRA administration platforms can guide your employees in choosing the right health insurance plan for themselves and/or their families.
QSEHRA plan administrators make the HRA process a breeze for you and your employees. An HRA administrator is an online platform or software that handles the details of HRA administration. They’ll help you navigate the HRA administration process much easier than self-administering your HRA.
HRA administrators like Take Command:
- Assist with legal and tax documents
- Manage year-end reporting
- Keep you in compliance with HIPPA and privacy policies
Summary of HRAs: HRA for Dummies
HRAs– as we’ve learned– are tax-effective, efficient, and flexible ways for companies to offer employee health insurance. Let’s take a final dive into the HRA details in this HRA For Dummies section.
HOW TO USE AN HRA:
Using your HRA is simple as an employee. Once you’ve established your health insurance provider, you pay for medical expenses and premiums out of pocket. Then, you simply upload your receipt of payments to your HRA administration platform, and you’ll be reimbursed through your employer from your HRA.
HRA rules for employers include setting reimbursement allowance limits, and with a QSEHRA, employers must only have a company of 50 employees or less.
HRA Pros and HRA Cons:
Now, let’s compare the pros and cons of HRAs, more specifically QSEHRAs:
- QSEHRAs allow small businesses to help employees with health insurance costs
- Small businesses set a budget that fits their needs
- Employee retention is improved due to excellent health benefits from a small business
- QSEHRAs are simple and easy for your employees to use
- QSEHRAs allow tax-free reimbursements for their qualified medical expenses
- Employees get to pick which health insurance plan is best for them and they aren’t tied to one health insurance option
- Only small businesses with 50 employees or less can offer QSEHRAs
- There are reimbursement maximum limits set by the IRS
- Some locations are better for QSEHRAs than others depending on the current health insurance market
- Insurance premiums must be reimbursed, employees cannot reimburse exclusively medical expenses
Can I withdraw money from my HRA account?
HRA accounts are designed for reimbursement from your employer
Once you’ve paid for medical expenses/insurance premiums and submitted the receipt, the money withdrawals from your employer-funded HRA to cover the expense
HSAs– on the other hand– allow withdrawals from your account without taxes because you and your employer can contribute money to them
For more in-depth information on WHAT IS AN HRA VS. HSA, check out this blog
HRA account rules and regulations are necessary for proper QSEHRA administration to your employees. If you’re eager to start offering a QSEHRA for your small business, we’re here to help you make sure the rules are followed and the process is as easy as possible.
Still have questions on HRA vs QSEHRA?
For EVERYTHING you need to know about QSEHRAs, check out our QSEHRA Guide.
Set up a call with our team of HRA experts to discuss your small business and your HRA plan!
At Take Command, we work to help you navigate the HRA administration process so it’s as smooth as possible. Get ready to offer competitive health insurance to your small business employees to boost their satisfaction and help your company flourish.