Quick Overview of HRAs in 2022

Health Reimbursement Arrangements (HRAs) are a type of health plan that employers can use to reimburse their employees for certain medical expenses.

What is a Health Reimbursement Arrangement?

A health reimbursement arrangement (HRA) plan is a type of employer-funded plan that reimburses employees for certain medical expenses and insurance premiums. Employers may be able to claim a tax deduction for the reimbursements made through these types of plans.

How does an HRA work?

This type of plan is set up by employers to cover certain medical expenses for employees. The employer decides how much it will put into the plan. Then employees can request reimbursement for medical expenses up to the specified amount.

It is not an account, like a flexible spending account (FSA). Funds cannot be withdrawn in advance to be used toward medical expenses. Instead, they must have these expenses reimbursed.

If an employee uses all of the allocated funds before year-end, then they will have to cover any other medical expenses out-of-pocket.

Types of Health Reimbursement Arrangements

There are multiple types of HRAs, including the following:

  • Qualified Small Employer Health Reimbursement Arrangement
  • Individual Coverage Health Reimbursement Arrangement
  • Excepted Benefit Health Reimbursement Arrangement

Now, you may be asking yourself: How do these plans differ?

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

QSEHRA plans are health coverage subsidy plans for employees working for small businesses (businesses with less than 50 full-time employees). It can be used to repay medical expenses that may not have been covered, or to offset health insurance coverage.

The yearly limits for QSEHRAs are set by the IRS, and the money that is reimbursed is tax-free for the employees and a tax deduction for employers.

This type of plan is typically reported in box 12 of Forms W-2 using code FF. Learn more about the Form W-2 Codes using our downloadable PDF guide.

Individual Coverage Health Reimbursement Arrangement (ICHRA)

ICHRA plans are newer type of Health Reimbursement Arrangement plan. In 2020, the government began allowing employers to offer this to employees, instead of group health insurance.

It can be used by employees to purchase their own individual health insurance in the Health Insurance Marketplace or elsewhere. These plans can also be used to reimburse health expenses, such as deductibles and copayments.

Depending upon the affordability of the plan and if the employee enrolled, employees may be eligible for a premium tax credit to help pay for health insurance coverage under the ACA.

This type of plan is reported on Form 1095-C.

Excepted Benefit Health Reimbursement Arrangement (EBHRA)

EBHRA plans can be used by employers who still offer traditional group health insurance plans to reimburse up to $1,800 in qualified medical expenses.

Employees can still enroll in this, even if they decline the group health insurance plan. These funds cannot be used to purchase individual health insurance.

Individual Coverage HRA and ACA Reporting

In June of 2019, the Internal Revenue Service, the Department of the Treasury, the Department of Labor, and the Department of Health and Human Services issued final rules regarding HRAs and other account-based group health plans. The final rules allow these type of plans to be integrated with individual health insurance coverage or Medicare, if certain conditions are satisfied.

In September of 2019, the IRS and Department of Treasury released proposed regulations explaining the application of Employer Shared Responsibility (ESRP) provisions in Code Section 4980H and the nondiscrimination rules in Code Section 105(h) to ICHRA plans with certain changes. The proposed regulations provide safe harbors for determining whether an ICHRA offer is minimum value and affordable for ESRP purposes.

This type of plan is considered affordable for ESRP purposed based upon the lowest-cost silver plan for self-only coverage provided for the residence of the employee, or under the location safe harbor, an employee’s primary site of employment.

ICHRA plans are reported a bit differently than traditional group health plans. When an ICHRA plan is offered, the employer must provide the employee’s age on January 1, use the ICHRA-specific Line 14 codes, and the employee’s ZIP code must be provided. The image below shows these sections in the IRS Form 1095-C.

Form 1095-C - Part II, Employee Offer of Coverage
Image of Form 1095-C – Part II, Employee Offer of Coverage

Employee Age on January 1

When an ICHRA plan is offered to an employee, the employer must provide the employee’s age on January 1 of the tax year.

Offer Codes – Line 14

The Form 1095-C Line 14 codes used for reporting ICHRA plans are as follows:

 Description
1LIndividual coverage HRA (ICHRA) offered to employee (EE) only.
Affordability determined by using EE’s primary residence location ZIP code.
1MICHRA offered to EE and dependents (not spouse).
Affordability determined by using EE’s primary residence location ZIP code.
1N ICHRA offered to EE, spouse, and dependents.
Affordability determined by using EE’s primary residence location ZIP code.
1OICHRA offered to EEs only.
Using the EE’s primary employment site ZIP code affordability safe harbor.
1PICHRA offered to EE and dependents (not spouse).
Using the EE’s primary employment site ZIP code affordability safe harbor.
1QICHRA offered to EE, spouse, and dependents.
Using the EE’s primary employment site ZIP code affordability safe harbor.
1RICHRA that is NOT affordable offered to EE; EE and spouse, and/or dependents.
1SICHRA offered to an individual who was not an full time EE.
1T ICHRA offered to EE and spouse (not dependents).
Affordability determined using EE's primary residence location ZIP code.
1UICHRA offered to EE and spouse (not dependents).
Using EE's primary employment site ZIP code affordability safe harbor.

Zip Codes – Line 17

The Form 1095-C Line 17 is used to input the employees ZIP code for each month of the year.

This should only be completed where certain codes (listed in the chart above) are used in Line 14.

  • For codes 1L, 1M, 1N, or 1T, use the ZIP code of the employee’s residence.
  • For Codes 1O, 1P, 1Q, or 1U, use the ZIP code of the employee’s primary site of employment.

Conclusion

Health Reimbursement Arrangements (HRAs) are an alternate type of group health plan, in which employers can reimburse their employees for certain medical expenses.

There are multiple types of HRA plans, including an Individual Coverage Health Reimbursement Arrangement. This plan type is reported on Form 1095-C and is reported differently than traditional group health plans.

Review our Essential Guide for Form 1095-C to learn the ins and outs of ACA reporting.

BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.

Leave a comment