HRA Options: Which is the Right Fit for Your Business?

Choosing the right health benefits for your team is one of the most important decisions you make as a business owner. Health Reimbursement Arrangements (HRAs) have emerged as a flexible, cost-effective alternative to traditional group health insurance plans, giving both employers and employees more control.

But with several types of HRAs available, how do you know which one is right for you? Let’s break down the key features of the three most popular options: the traditional HRA, the Qualified Small Employer HRA (QSEHRA), and the Individual Coverage HRA (ICHRA).

1. Traditional HRA (Group Coverage HRA)

A traditional HRA, also known as an Integrated HRA, is designed to work with a traditional group health insurance plan.

• How it works: Your company offers a group health plan, typically a high-deductible plan, and then uses the HRA to reimburse employees for out-of-pocket medical expenses not covered by the plan, such as deductibles, copays, and coinsurance.
• Who it’s for: This is a great option for businesses of any size that want to offer a group health plan but also want to help employees manage their out-of-pocket costs.
• Key features:
  • Paired with a group plan: It’s not a standalone benefit; it must be offered alongside a traditional group health plan.
  • No contribution limits: Employers can set their own reimbursement limits, which are not capped by the IRS.
  • Employer-funded: Only the employer contributes to the HRA. Unused funds typically revert back to the employer at the end of the plan year.

2. QSEHRA (Qualified Small Employer HRA)

The QSEHRA was introduced to provide an affordable health benefits solution for small businesses that do not offer a group plan.

• How it works: Instead of offering a group plan, your business provides a tax-free allowance to employees. Employees then use this money to pay for their own individual health insurance premiums and other qualified medical expenses.
• Who it’s for: This option is specifically for small businesses with fewer than 50 full-time employees that do not offer a group health plan.
• Key features:
  • Standalone benefit: QSEHRA cannot be offered with a group health plan.
  • IRS contribution limits: The IRS sets annual contribution limits for QSEHRAs, which can be adjusted for family size.
  • Eligibility: Must be offered on the same terms to all full-time employees, with some variation allowed for family size and age.

3. ICHRA (Individual Coverage HRA)

The ICHRA is a more recent and highly flexible option that works for businesses of any size. It allows employers to give employees a tax-free allowance to purchase individual health insurance.

• How it works: Similar to a QSEHRA, the company offers an allowance for employees to purchase their own individual health insurance. The key difference is the flexibility in plan design.
• Who it’s for: Businesses of any size—from small startups to large corporations—can offer an ICHRA. It’s particularly useful for businesses with diverse employee demographics or those that want to offer different benefits to different classes of employees.
• Key features:
  • No size limitations: Available to employers of any size, including those that are considered Applicable Large Employers (ALEs) under the ACA.
  • No contribution limits: Employers have complete control over the reimbursement amount.
  • Flexibility through classes: You can offer different reimbursement amounts based on legitimate employee classes (e.g., full-time, part-time, salaried vs. hourly, different locations), a level of customization not possible with a QSEHRA.
  • Can be offered alongside a group plan: An ICHRA can be offered to one class of employees while a traditional group plan is offered to another class.

Choosing the Right HRA for Your Business

Deciding on the best HRA option depends entirely on your business size, budget, and employee needs. It’s no longer a one-size-fits-all world, and these options provide the flexibility to build a benefits package that truly works for your team.

If you’re considering an HRA and need guidance, the GTM Insurance Agency team is here to help you navigate these options and find the perfect solution for your business. Call us today at 518-373-4111 or request a complimentary consultation.