Does an HRA work with Medicare?

Medicare is a valuable insurance option for U.S. citizens aged 65 or older and young people with disabilities. According to the Centers for Medicare & Medicaid Services¹, more than 65 million Americans had Medicare coverage in March 2023. Enrollment is rising steadily.

A health reimbursement arrangement (HRA) is a cost-effective alternative to traditional group health plan coverage. It's another health benefit that can help older people and those with disabilities get their medical care expenses reimbursed by their employer.

Employers and employees commonly ask whether they can use their HRA for Medicare premium reimbursement. You can use HRAs and Medicare together. But combining the two can get a little tricky.

In this article, we'll break down how it all works by the different types of HRAs and Medicare plans.

Find out what you can get reimbursed with an HRA in our infographic

What types of Medicare are available?

Before we talk about how combining Medicare and HRA benefits works, let's go over each type of Medicare plan in more detail.

Medicare Part A

Medicare Part A is hospital insurance. It's considered minimum essential coverage (MEC) by the Affordable Care Act (ACA).

Medicare Part A covers the following expenses²:

• Inpatient hospital care
• Skilled nursing facility care
• Home healthcare
• Hospice care

Medicare Part B

Medicare Part B is medical insurance covering any medically necessary supplies or services and preventive care. It isn’t considered MEC unless you also have Part A coverage. Original Medicare includes Parts A and B.

Medicare Part B covers the following services³:

• Provider services
• Home health services
• Ambulance services
• Preventive services
• Therapy services
• Mental health services
• X-rays and lab tests
• Chiropractic care
• Select prescription drugs

Medicare Part C

Medicare Part C⁴, also known as Medicare Advantage, is a health plan offered through a private insurance company that has a contract with Medicare. Medicare Advantage qualifies as MEC and often includes benefits beyond Medicare Parts A and B.

The most common types of Medicare Advantage plans are:

• Health maintenance organizations (HMOs)
• Preferred provider organizations (PPOs)
• Private fee-for-service (PFFS)

Medicare Part D

Medicare Part D⁵ is prescription drug coverage. Each Part D plan will have its own complete list of prescriptions it covers, so be sure to check that the ones you need are on it before enrolling.

All Part D plans must cover all drugs available in the following categories:

• HIV/AIDS treatments
• Antidepressants
• Antipsychotic medications
• Anticonvulsive treatments for seizure disorders
• Immunosuppressant drugs
• Anticancer drugs (unless covered by Part B)
• Vaccines (unless covered by Part B)

How does Medicare work with the QSEHRA?

The qualified small employer HRA (QSEHRA) is one way employers can reimburse Medicare premiums. A QSEHRA is for employers with fewer than 50 full-time equivalent employees (FTEs). They can offer this HRA to reimburse their employees for eligible expenses and insurance premiums.

All full-time employees are automatically eligible for the QSEHRA no matter their insurance status. However, if they have an insurance plan that qualifies as MEC, then all of their eligible QSEHRA reimbursements will be 100% tax-free.

The following table shows which Medicare plans work with the QSEHRA and under what conditions:

* If you're enrolled automatically in Medicare Part A through Social Security, then the Internal Revenue Code (IRC) doesn't consider the payroll tax paid for Medicare Part A to be a medical expense. Therefore, it isn't reimbursable through the QSEHRA.

** Part A can work on its own, but not Part B—if you have Part B, you must also have Part A or C to meet MEC requirements.

How does Medicare work with the ICHRA?

Next, there's the individual coverage HRA (ICHRA). Under the ICHRA, eligible employees and their dependents must have a qualifying type of individual health insurance in order to participate. This includes either Medicare Part A and B together or Part C.

The following table shows which Medicare plans work with the ICHRA and under what conditions:

* If you're enrolled automatically in Medicare Part A through Social Security, then the Internal Revenue Code (IRC) doesn't consider the payroll tax paid for Medicare Part A to be a medical expense. Therefore, it isn't reimbursable through the ICHRA.

** Part A can work on its own, but not Part B—if you have Part B, you must also have Part A to meet MEC requirements.

How does Medicare work with the GCHRA?

Lastly, let's cover the group coverage HRA (GCHRA). This one's quick—the GCHRA is the only HRA type that does not work with any Medicare insurance plans. Since Medicare is an individual insurance option, and the GCHRA only works with a traditional group health plan, the two aren't compatible.

Luckily, if your employer offers a GCHRA, that means they're also offering a group health policy that will cover many of the same healthcare needs you would get covered through Medicare. Employers can then reimburse out-of-pocket medical expenses, deductibles, coinsurance, and copayments with a GCHRA.

Conclusion

If your employees use a Medicare plan, the QSEHRA or ICHRA are your go-to HRAs to work with your employees’ health insurance coverage. You can reimburse their health insurance premiums as well as qualifying medical expenses to lower their out-of-pocket healthcare expenses even further.

Ready to get started with the QSEHRA or ICHRA? Schedule a call with a personalized benefits advisor now!

This blog article was originally published on March 24, 2021. It was last updated on July 10, 2023.

1. https://data.cms.gov/summary-statistics-on-beneficiary-enrollment/medicare-and-medicaid-reports/medicare-monthly-enrollment/data?query=%7B%22filters%22%3A%7B%22list%22%3A%5B%7B%22conditions%22%3A%5B%7B%22column%22%3A%7B%22value%22%3A%22YEAR%22%7D%2C%22comparator%22%3A%7B%22value%22%3A%22%3D%22%7D%2C%22filterValue%22%3A%5B%222023%22%5D%7D%5D%7D%5D%2C%22rootConjunction%22%3A%7B%22value%22%3A%22AND%22%7D%7D%2C%22keywords%22%3A%22%22%2C%22offset%22%3A0%2C%22limit%22%3A10%2C%22sort%22%3A%7B%22sortBy%22%3A%22YEAR%22%2C%22sortOrder%22%3A%22ASC%22%7D%2C%22columns%22%3A%5B%5D%7D
2. https://www.medicare.gov/what-medicare-covers/what-part-a-covers
3. https://www.medicare.gov/what-medicare-covers/what-part-b-covers
4. https://www.medicareinteractive.org/get-answers/medicare-health-coverage-options/medicare-advantage-plan-overview/medicare-advantage-basics
5. https://www.medicareinteractive.org/get-answers/medicare-prescription-drug-coverage-part-d/medicare-part-d-coverage/part-d-basics