With an HRA, employers define what IRS-permissible expenses will be eligible, how they will be reimbursed and up to how much can be paid per plan year. Eligible expenses can include specified out-of-pocket expenses like deductibles, coinsurance, co-pays, dental services and vision services. By paying these expenses through an HRA, benefits paid are tax-deductible by the employer and tax-free to the employee.
To offer an HRA reimbursement, employers must have HRA plan documents in place defining eligibility, benefit plan design, plan processes and providing other ERISA-mandated disclosures. Plan documents and disclosures are required before reimbursements to employees may begin. Arrangements can vary by plan and an employer can have multiple plans in place, allowing much flexibility.
The employer is not required to prefund a bank account for reimbursements, instead, the employer provides funding as claims are processed for payment.
Types of HRAs
Integrated HRA
Reimburses expenses after the primary insurance carrier has processed all charges. The primary carrier’s processing of a claim will show the charges to be considered under the HRA. The HRA will then reimburse eligible expenses, as defined by the employer.
Most often this type of HRA is paired with a group health plan; however, an employer can also integrate a Dental and/or Vision HRA with a fully insured dental or vision insurance plan to enhance the benefit.
HSA-Compatible, Integrated HRA
Reimburses in compliance with IRS-mandated minimum deductible requirements to permit covered employees to benefit from not only receiving tax-free reimbursement of out-of-pocket expenses, but also the tax advantages of making contributions and saving money in a Health Savings Account (HSA).
Standalone or Limited-Purpose HRA
Reimburses specified vision and/or dental expenses only. The employer specifies what services are reimbursable. Employers often use this type of plan to provide vision or dental benefits without the need to pay premiums for a fully-insured plan vison or dental plan.
Retiree HRA
Reimburses specified qualified medical, dental, vision, IRS 213d expenses for a defined classification of retired employees. Not to be confused with reimbursement for retirement-age, actively working, benefit-eligible employees. This benefit is for individuals who are retired and no longer eligible for employer-sponsored benefit plans as a full-time, active employee.