Understanding eligible expenses for HRAs, QSEHRAs, and ICHRAs

When it comes to health insurance, it's essential to know what each plan covers.

This blog post delves into the nuances of Health Reimbursement Arrangements (HRAs), Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), and Individual Coverage Health Reimbursement Arrangements (ICHRAs), highlighting their differences in eligible expenses and how they can empower employees in managing their healthcare.

Health Reimbursement Arrangements (HRAs)

A Health Reimbursement Account (HRA) 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 (QSEHRAs) 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 healthcare to their employees.

However, a small business can set up a QSEHRA to help cover healthcare.

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 healthcare 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 (ICHRAs) 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 healthcare 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 healthcare 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, & ICHRAS

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.

Explore ICHRAs with Thatch

Understanding eligible expenses is important in finding competitive, flexible health benefits that fit your organization's needs.

If your team seeks a way to empower employees regarding their health insurance plans, ICHRAs enable everyone to choose the coverage that best fits their needs. This personalized approach can boost employee satisfaction, improve retention rates, and contribute to a happier work environment.

Ready to explore ICHRAs? Thatch can help. Reach out today for a demo and personalized guidance on your ICHRA journey.