As a small business owner looking to offer health coverage for the first time or wanting an alternative to traditional group health insurance a Health Reimbursement Arrangement (HRA) has become a popular option. The two types of health plans that are dominating this employee benefits trend are Qualified Small Employer HRA and Individual Coverage HRA.
Both plans allow employees to be reimbursed for insurance premiums and eligible medical expenses (as determinded by the IRS), but when comparing the functions, they are very different. Designing the perfect employee health plan requires starting with the end in mind, consider your employee benefit goals as you weigh the pros and cons of each plan.
How are an ICHRA and QSEHRA the same?
The underlying reimbursement model allowing employees the freedom to purchase their own insurance while providing pre-tax financial support is where they overlap. This is explained in four easy steps.
- Employers choose reimbursement limits, qualified expenses, and define employee eligibility.
- Employees enroll in required health insurance that is suitable for their health care needs.
- Employees submit reimbursement claims to their administrator, similar to an expense report.
- Reimbursement is issued directly to employees for valid claims from the HRA administrator.
How are an ICHRA and QSEHRA different?
As the name implies only Qualified Small Employers or organizations with fewer than 50 full-time employees that do not offer a group insurance policy (including group health, dental, or vision insurance) can provide a QSEHRA to their employees.
Employers of any size may offer an ICHRA to their employees. For Applicable Large Employers (ALEs) ICHRA satisfies the Affordable Care Act (ACA) employer mandate as long as coverage is offered to employees working 30 or more hours and coverage meets affordability requirements.
All full-time employees must be provided coverage with a QSEHRA, though employers are permitted to exclude part time, seasonal, and employees under the age of 26. Employees may not waive the QSEHRA contribution. To access their allowance employees must retain minimum essential coverage (MEC). Examples of qualified coverage include individual health insurance, spouse’s group coverage, and Medicare.
An ICHRA provides flexibility to the employer to offer the benefit to employees based on 11 predefined classes. Contributions can also be structured differently for each class. Employees are only able to use their allowance for reimbursement toward expenses related to an individual health insurance policy or Medicare.
Group health insurance integration
If offering a QSEHRA, group health insurance must be discontinued.
Group health insurance may be offered alongside an ICHRA as long as the benefits are offered to different classes of employees. A simple rule is employees cannot be offered the choice between group coverage and ICHRA. Class size requirements must be met if offering group health insurance alongside ICHRA for the following classes full-time, part-time, salaried, hourly, or location.
Allowance caps and contribution structuring
The IRS sets annual contribution and reimbursement limits for a QSEHRA. In 2021, those caps are:
- $5,300 ($441.67 a month) for single employees
- $10,700 ($891.67 a month) for employees with a family.
A major perk to an ICHRA is there are no annual contribution caps. Also, employers have more flexibility to provide different allowances to different employee classes.
Both ICHRA and QSEHRA allow employers to vary reimbursement amounts to employees based on age and family size.
How Benafica can help.
Benafica offers employers and their employees full service HRA administration. Complimentary consulting services explain the different options to employers so each company can tailor their HRA plan to their own budget and employee benefit goals. On the employee side, each employee receives their own Benafica account to manage their HRA dollars and reimbursements. Learn more about Benafica's ICHRA and QSEHRA for your employees.
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