This year health coverage continues to be a primary focus for employee benefits and employers are continually looking for innovative and cost-effective ways to compete in their benefits. A Health Reimbursement Arrangement (HRA) is timely and can offer flexibility for employers.
HRAs are tax-free supplemental healthcare funds and are funded solely by an employer. These funds are used to reimburse out-of-pocket medical expenses and some plans allow reimbursement for individual insurance premiums of employees. Funds aren't available until a reimbursement request is submitted by an employee, for themselves or eligible dependents. If the HRA allocated funds are not disbursed to the employees, they can be forfeited to the employer or a percentage may be rolled forward for use by employees, in future benefit years.
Benefits of an HRA
There are multiple advantages of an HRA for both the employer and employee.
The employer benefits from tax advantages, as reimbursements are tax deductible. Employers can build the plan with different options including a benefit cap for each year, a roll-over of unused funds and a maximum benefit for each participant. Employers determine what the eligible expenses are for reimbursement. This allows the employer to predict their maximum exposure for the benefit year.
Employees benefit from the funds being available to help cover some of their out-of-pocket expenses and in some instances cover their high deductible. Additionally, employees are not taxed on the reimbursement of eligible expenses and are not required to report the HRA funds on their individual tax returns.
Employees with minimal out-of-pocket medical expenses can build up funds to cover high deductibles. However, funds are not portable if an employee leaves and any remaining funds are forfeited to the employer. Also, for expenses to be disbursed for a spouse or dependents' expenses, under the Medical HRA, they must be covered under a qualified Group Health Plan as well.
Qualified expenses are most commonly: Section 213d expenses, which may include medical deductibles, out-of-pocket amounts, copayment or coinsurance out-of-pocket.
Types of HRAs
There are several types of HRA's available which helps employers find the right fit for their employees.
Medical HRA - Medical HRA funds are used for healthcare reimbursement. In order to meet market reform provisions of the ACA, a Medical HRA plan needs to be integrated with a Group Health Plan.
Limited Purpose HRA - Limited Purpose HRA funds are available for dental and vision expense reimbursement. This HRA is compliant with rules allowing a participant to make a qualified HSA contribution while under coverage of a Limited HRA.
Qualified Small Employer HRA (QSEHRA) - The QSEHRA is available for Employers with NO sponsored group medical benefits and fewer than 50 employees. The funds can be used to cover the costs of individual health insurance premiums and to reimburse the out-of-pocket costs for the covered employee and their dependents' health care expenses. Learn more about the QSEHRA.
Retiree Only HRA - The Retiree Only HRA is intended to be used after employees retire. These funds help to offset health expenses, cover benefit premiums, individual insurance, Cobra, or Marketplace premiums. Funds can be contributed while an employee is active, but they are not accessible until after retirement. This allows the plan to provide more flexibility in allowable expenses, i.e., a Retiree Only HRA can be set up to allow for premium reimbursement of insurance or Marketplace premiums if the participant is not yet eligible for Medicare. The Retiree Only HRA must operate as a separate benefit plan, with separate documents, SPD, and all administration is done separately, including a Form 5500 filing.
Summary of Benefits and Coverage (SBC) for HRA Update
The HRA SBC is a short document, provided to eligible plan participants, to help compare insurance options. Its purpose is to provide a simple and consistent way for consumers to compare insurance plans' costs and benefits. This document became a requirement in September 2012 through the ACA and all employers must follow the template.
In April 2016 the Department of Health and Human Services (HHS), the Department of Labor (DOL) and the Department of the Treasury announced enhancements to the SBC template. Employers are required to start using this updated template on the first day of the first open enrollment period that begins on or after April 1, 2017.
Although the positives of an HRA frequently outweigh the concerns, employers need to be aware of their responsibilities when setting up a self-funded plan. The compliance rules require non-discrimination testing and rules for claims administration, providing plan documents and notifications are followed in a timely manner.
Stay Compliant with EnsuredCompliance®
Creating and managing the required documents and non-discrimination testing for HRA Plans can be confusing and time-consuming. EnsuredCompliance can help you build required HRA documents quickly and enables easy document updates and yearly re-statements. Additionally, it offers an easy to use solution for running non-discrimination tests. Learn more about how EnsuredCompliance can help your business.
For questions regarding how these plans and changes impact your business, it may be best to contact your tax or legal counsel.