Innovative Employee Benefits, Inc.
Innovative Employee Benefits, Inc.
6926 Shannon Willow Road, Suite 100
Charlotte, NC 28226
PO Box 470257
Charlotte, NC 28247-0257
Phone: 704-341-5981
Email: info@better-benefits.com

Health Reimbursement Arrangement

CONSUMER-DRIVEN HEALTH CARE

The term “consumer-driven health care” is used to describe different vehicles for providing health care or funding health care costs. These vehicles encourage individuals to become actively involved in making decisions regarding their health care. The proponents of such vehicles believe that giving the individuals more control– empowering them to assume a more active role and giving them a financial stake in lowering their health care costs – will foster an increase in consumer educational and market competition. Wouldn’t this ultimately result in greater health care quality and availability at a lower cost? One component commonly found in “consumer-driven health care” is a personal account through which an employee can pay for or be reimbursed for certain medical expenses of the employee.

One of the most popular mechanisms today is Health Reimbursement Arrangements (HRAs).

HEALTH REIMBURSMENT ARRANGEMENTS

A Health Reimbursement Arrangement (HRA) is an employer owned, self-funded arrangement used to reimburse employees for eligible medical related expenses on a non-taxable basis.  HRAs can be designed in a variety of ways.  Plan design allows for flexibility while still providing employer tax advantages. 

The most common use of an HRA is coupling the HRA with high-deductible health coverage.    The premium cost for high deductible health insurance coverage is generally much less than the premium cost for traditional group health coverage.  The employer can use that savings to assist their employees in paying for the employee’s increased out of pocket expense.

HRAS……IN SUMMARY

  • Employers of any size can offer an HRA
  • HRAs can potentially reduce health plan costs by coupling the HRA with a high deductible health plan.
  • HRAs are provided only with Employer dollars, not employee salary reductions.
  • HRAs do not have the strict eligibility requirements that HSAs do, nor do they require a specific type of high deductible coverage or have contribution limits.  Employers can limit the type of expenses they want to reimburse from an HRA and can choose whether to allow carryovers and spend downs.  HRAs can also reimburse insurance premiums.
  • HRAs may allow employees to roll-over unused balances to the next plan year
  • There is no “cash out” option available.  HRA funds not used are retained by the employer.
  • An HRA may reimburse only medical care expenses as defined in Code § 213(d).  The out of pocket medical expenses that may be reimbursed are the same as those that a health FSA may reimburse.
  • HRA reimbursements are not taxable to the employee.
  • HRAs do not require employers to advance claims payments to employees during the early months of the plan year.  Employers can pay claims from general assets; there is no funding requirement.
  • The employer receives a tax deduction in the year the HRA reimbursement is made.

A plan document must be adopted by the employer (typically by a board of directors’ resolution or by other formal action by an authorized officer) or owner.  The design features of the HRA must be incorporated into the plan document and communicated to the employees.


 

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