How Does an EBHRA Work?

We’d like to introduce you to one of the new kids on the HRA block, known as an EBHRA. An EBHRA (let’s say, “e-brah”) is an Excepted Benefit Health Reimbursement Arrangement. Federal rules allowed employers to start offering this type of HRA on Jan. 1, 2020. 

An EBHRA allows employers of all sizes to reimburse their employees (tax-free) for certain medical expenses that are not covered by their health insurance plan. Employees may use money (tax-free) from an EBHRA to pay for eligible out-of-pocket medical expenses that they or their dependents incur. 

An EBHRA may be used toward out-of-pocket medical expenses, but not individual or group health care premiums. It includes dental; vision; long-term care; nursing home care; short-term, limited-duration insurance; and COBRA coverage. 

An EBHRA must be offered in conjunction with traditional group coverage, but employees do not have to be enrolled in the group plan. It also must be offered to all employees within the same employee class. 

The maximum annual contribution for an EBHRA is $1,800 for 2022. Like with all HRAs, the IRS doesn’t consider contributions as employee income, so employees are reimbursed tax-free. Funds can be carried over from year to year, and the rollover amount does not count toward the annual limit. However, employers are not required to allow a carryover. EBHRAs are tax-free for both employers and employees. 

Employees must: 

• Enroll in the EBHRA account provided by the employer
• Ensure they are enrolled in eligible excepted benefits, such as vision and dental coverage
• Pay a monthly premium to the insurance carrier or provider
• Submit reimbursement requests (and required documentation)
• Receive the reimbursement funds

To qualify as an EBHRA: 

• Employers must offer the EBHRA in conjunction with a traditional group coverage health plan. But EBHRA participants do not have to enroll in the traditional group coverage plan, they must merely be offered the coverage.
• It may not be used to reimburse individual health insurance plan premiums, group health insurance plan premiums (except COBRA) or Medicare premiums.
• The EBHRA must be uniformly available to all employee classes, such as full time vs. part time, different geographic locations or different occupations.

Note: Employers sponsoring an EBHRA must have a written, signed plan document on file at all times. 

Want more information on an EBHRA? Give us a call.