Understanding eligible expenses for HRAs, QSEHRAs, and ICHRAs

ARMMY PICCA // Shutterstock When it comes to health insurance, it’s essential to know what each plan covers. Thatch delves into the nuances of Health Reimbursement Arrangements, or HRAs, Qualified Small Employer Health Reimbursement Arrangements, or QSEHRAs, and Individual Coverage Health Reimbursement Arrangements, or ICHRAs, highlighting their differences in eligible expenses and how they can empower employees in managing their health care. Key Takeaways: HRAs, QSEHRAs, and ICHRAs offer tax-advantaged reimbursement for medical expenses, each with specific eligibility criteria. QSEHRAs are designed for small businesses, covering a broader range of expenses, including individual health insurance premiums. ICHRAs provide flexibility for businesses of all sizes, allowing employees to choose their health insurance plans while reimbursing premiums and qualified medical expenses. Health Reimbursement Arrangements (HRAs) A Health Reimbursement Account is a benefit set up by an employer to help employees cover qualifying health expenses. Reimbursements under an HRA are tax-free for both the employee and employer. These defined health contribution plans have been around formally since the early 2000s. How Do HRAs Work? Here’s an example. A startup creates an HRA and sets aside $1,000 annually for each employee. All employees of the same class will have the same allowance but can vary allowance amounts within classes by age and number of dependents. Let’s say an employee pays a $40 copay to see a specialist. After the appointment, they can submit the receipt to their employer for reimbursement. If approved, the employer deducts $40 from the employee’s HRA allowance and reimburses them. The reimbursement is tax-free for the employee. Unused HRA balances can roll over month to month or year to year, depending on the terms of the HRA. HRAs: Eligible Medical Expenses Eligible medical expenses vary depending on the type of HRA but may include the following: Medical services and treatments: Acupuncture Addition treatment Ambulances Artificial limbs or teeth Chiropractor Contact lenses Dental treatments (filings, X-rays, cleaning, braces) Doctor’s office visits Fertility treatments Lab fees Physical therapy Prescription medications Psychiatric care provided by a licensed professional Smoking cessation programs Surgery (excluding cosmetic) Vision care Over-the-Counter Medications HRAs may also cover some over-the-counter medications for treatments including, but not limited to: Acne Allergies Cold and flu Constipation Indigestion Lice Motion sickness Pain Rash, burns, or cuts Sleep Over-the-Counter Items HRAs may also cover medical items. Bandages Braces Contraception Contact lens supplies First aid supplies Glucose monitors Feminine products PPE Pregnancy tests Reading glasses This list is not exhaustive. Employees should consult the terms of their HRA for more information about eligible expenses. Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) Qualified Small Employer Health Reimbursement Arrangements are a form of HRAs designed with small businesses in mind. The Affordable Care Act does not require employers with fewer than 50 full-time employees to offer health care to their employees. However, a small business can set up a QSEHRA to help cover health care. QSHERAs can only be offered to small business employees, but as a subclass of an HRA, QSHERAs can often cover more medical expenses than a traditional HRA. Since it is an HRA, only employers can contribute to a QSEHRA. QSEHRAs entered the health care landscape in 2016 with the signing of the 21st Century Cures Act. How Do QSEHRAs Work? If an employee is enrolled in an employer’s QSEHRA plan, they pay health insurance premiums and medical expenses out of pocket and then apply for reimbursement from their employer. The employer sets aside an allowance for each employee in the form of a QSEHRA. Employer contributions go in tax-free, and employees receive qualified reimbursements tax-free. QSEHRAs: Eligible Medical Expenses In terms of eligible medical expenses, QSEHRAs can cover everything an HRA covers, plus the cost of individual health insurance premiums and spouse or family health insurance premiums. Employees should consult their HR provider or plan administrator for more personalized information. Individual Coverage Health Reimbursement Arrangements (ICHRAs) Individual Coverage Health Reimbursement Arrangements are also a form of HRA that businesses of any size can offer. If a business offers employees an ICHRA, they can use it to cover qualifying health expenses. The difference between HRAs and ICHRAs is what they cover. ICHRAs can reimburse health care premiums, while most other forms of HRAs cannot. The difference between ICHRAs and QSEHRAs is who they cover. While they offer similar coverage, QSEHRAs can only be offered by small businesses with fewer than 50 full-time employees. Companies of any size can set up an ICHRA. Like any HRA, only employers can contribute to an ICHRA. Employee reimbursements are tax-free. How Do ICHRAs Work? ICHRAs allow employers to create allowances for eligible employees. The allowance can reimburse employees for health care premiums and, in some cases, qualifying medical expenses. Like QSEHRAs, ICHRAs can help reimburse the cost of tax-free health insurance premiums. An ICHRA can help cover the cost of an employee’s health insurance premium, and the employee can choose what plan best fits them or their family. They can shop for coverage on the marketplace, honing in on the right plan in terms of budget, coverage, and personal preferences. ICHRAs: Eligible Medical Expenses ICHRAs can be designed in one of two ways by an employer. ICHRAs can be designed to cover insurance premiums or both insurance premiums and qualified medical expenses. If an employer’s plan covers qualified medical expenses in addition to insurance premiums, an employee could be reimbursed for everything from prescriptions to over-the-counter medical supplies. HRAs, QSEHRAs, and ICHRAS Thatch Understanding the differences in eligible expenses between HRAs, QSEHRAs, and ICHRAs can help businesses determine which type of plan best fits their needs. Here’s how the plans differ and what expenses are eligible for each. This story was produced by Thatch and reviewed and distributed by Stacker.