Health Reimbursement Arrangements (HRA'S) are employer funded accounts that provide reimbursements to employees for qualified medical expenses (defined by section 105 and 106 of the Internal Revenue Code). HRA plans, by employer choice, can permit a rollover feature. Distributions are tax free and claims do not have to be incurred in the coverage period.
With the implementation of the Affordable Care Act, HRAs were considered group health plans are are subject to PHSA (Public Health Service Act) regulations effective January 1, 2014. In September 2013, the three Federal Agencies released guidance regarding ho HRAs could be designed to be allowable and "excepted" from the market reforms.
Effective January 1, 2014 per IRS Notice 2013-54 the following three plan types are allowable:
- Integrated HRA
- Dental and/or Vision HRA
- Retiree Only HRA
For an HRA to be considered integrated with a group health plan, the HRA must benefit only employees who are covered by primary group health plan coverage that meets the requirements of PPACA and is provided by the employer. HRAs may be offered to employees that do not enroll in the employer's group health plan, but are enrolled in other non-HRA group coverage (such as a plan maintained by the employer of the employee's spouse).
An employer sponsored HRA CANNOT be integrated with individual market coverage's or with employer plans that provide coverage through individual policies.
Dental and/or Vision HRAs
Dental and/or Vision HRAs are still allowable as an excepted benefit as long as the plan follows these guidelines:
- Benefits provided are under a separate policy, certificate or contract of insurance
- The Plan is not an integral part of a group health plan
Separate retiree only plans can continue in 2014 and beyond. Retiree HRAs are excepted from market reforms. If funds from the HRA are used to purchase a health plan on the Exchange, the individual will not be eligible for a premium tax credit or subsidy.
HRA 2014 and beyond
IRS Notice 2013-54 requires that all excepted benefit HRAs must allow participants to opt out of coverage and waive the right to future reimbursements. At termination, any funds remaining must be forfeited back to the employer. This provision is necessary to allow an employee to purchase coverage on the Exchange.
The Benefits of an HRA:
- Flexibility in plan design
- Ability to "roll over" unused money from one plan year to the next
- No "use it or lose it" rule
- Reimbursement for medical expenses does not have to be within the covered plan year. (For example, if an employee was a participant in the HRA in 2002 and 2003, they could submit a claim for an expense incurred in 2002 in the 2003 plan year).
- Compliments a Flexible Spending Account Plan – An employer can offer both plans to their employees
- Former employees, including retirees (by plan design) can have continued access to their unused funds.
How do I implement an HRA?
There are a few items that will need your consideration before implementing an HRA. You will need to determine the following:
- The Employer Contribution
- Optional features you will want to offer
- Whether funds roll from year to year
- How to handle terminated employees and retirees
- Which pays first, the FSA or the HRA (if the employer sponsors both plans)
Upon plan implementation, the Employer will need to adopt a formal plan document and distribute Summary Plan Descriptions to all eligible employees.
Who Can Sponsor an HRA?
Regular corporations, partnerships, S corporations, limited liability companies (LLCs), sole proprietors, professional corporations and not-for-profits can all save money on payroll taxes by establishing an HRA. While regulations prohibit a sole proprietor, partner, members of an LLC (in most cases), or individuals owning more than 2% of an S corporation from participating in the plan, they may still sponsor a plan and benefit from the savings on payroll taxes.
Contact Us Today
Setting up an HRA is an easy and cost effective way to enhance your employees benefits program. Request a Proposal and see how easy it is for you to save tax dollars!