Understanding Health Reimbursement Arrangements and Insurance Policy Reinstatement

A Health Reimbursement Arrangement (HRA) allows employers to provide tax-advantaged funds to employees for qualified medical expenses, including the payment of individual health insurance premiums. According to the Internal Revenue Service (IRS), these arrangements are employer-funded and do not require employees to pay income tax on the reimbursements. When an employer adjusts an HRA, it may affect how an employee covers their insurance policy costs or manages the reimbursement of premiums for plans purchased on the individual market.

How HRAs Function for Insurance Premiums

HRAs are not insurance policies themselves but rather employer-funded accounts. Employers determine the contribution limits and the types of expenses eligible for reimbursement. Under Centers for Medicare & Medicaid Services (CMS) guidance, specific types of HRAs—such as the Qualified Small Employer HRA (QSEHRA) or the Individual Coverage HRA (ICHRA)—allow businesses to reimburse employees for individual health insurance premiums. If an employer increases the reimbursement rate, it effectively lowers the net cost of coverage for the employee, provided the employee maintains a qualifying health plan.

Reinstating a health insurance policy generally depends on the insurer’s internal policies and the reason for the policy’s termination. If a policy was canceled due to non-payment, insurers typically provide a “grace period” as mandated by the Affordable Care Act (ACA) for those receiving premium tax credits. Outside of this period, reinstatement often requires the payment of all past-due premiums and the insurer’s approval.

Distinctions Between HRA Types and Policy Eligibility

Not all HRAs function identically regarding insurance premiums. Understanding the difference between account types is essential for employees:

• Individual Coverage HRA (ICHRA): Employers can use this to reimburse premiums for individual market plans. Employees must be enrolled in individual coverage to participate.
• Qualified Small Employer HRA (QSEHRA): Available to small employers with fewer than 50 full-time employees. It also allows for the reimbursement of individual premiums.
• Excepted Benefit HRA: Generally limited to specific costs like dental or vision, and often cannot be used to pay for primary individual health insurance premiums.

According to Department of Labor regulations, employees must ensure their individual health plan meets the minimum essential coverage requirements if they intend to use HRA funds for premium reimbursement. If an employer modifies an HRA, they are generally required to provide employees with advance written notice, typically at least 90 days before the beginning of the plan year.

Frequently Asked Questions

Can I use HRA funds for any health insurance plan?

No. Most HRAs that cover premiums, such as the ICHRA or QSEHRA, require that the health plan be an individual market policy. Group health plans offered by a spouse’s employer, for example, are generally not eligible for reimbursement through an ICHRA.

What happens if my employer stops offering an HRA?

If an employer terminates an HRA, it qualifies as a “triggering event” under federal guidelines. This allows employees to enroll in a new health insurance plan through the Health Insurance Marketplace during a Special Enrollment Period, regardless of whether it is during the standard open enrollment window.

Is HRA reimbursement considered taxable income?

No. Reimbursements made through a compliant HRA are excluded from an employee’s gross income and wages for federal income tax and employment tax purposes, provided the expenses are qualified medical expenses under Section 213(d) of the Internal Revenue Code.

Employees should consult their Summary Plan Description (SPD) or their company’s HR department to confirm the specific terms of their HRA, as employer-defined rules can vary regarding reimbursement caps and the process for reinstating coverage after a lapse.