An HRA is an employer provided benefit plan
that reimburses employees for certain medical care expenses. An HRA
must be 100% funded by the employer and there can be no contribution
from the employee. There can be many advantages to making an HRA an
integral part of an employee benefit package:
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The employer can customize the plan to only pay
for expenses they want to cover.
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The plan can include reimbursement for just the
employee or the employee’s whole family.
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The plan can stipulate that it will only pay
when expenses are incurred or it can accumulate a certain amount of
dollar benefits each month.
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There is no specified plan year and no “use it
or loose it” rule like in a Section 125 Medical Reimbursement Plan.
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The employer can stipulate what happens to
benefits when employees terminate.
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The plan does not need to be pre-funded. The employer can fund the plan as claims are processed.
For a company to reimburse employees tax-free for medical expenses they
must establish an HRA plan document first. The plan document should
stipulating various specifics of the plan including who is eligible, a
description of the benefits, how they are accrued, how claims can be filed
and it must include full compliance with ERISA, HIPAA and COBRA laws and
regulations.
There are certain non-discrimination rules regarding eligibility and
benefits. There is no specific IRS Code section governing HRA’s, but the
IRS has indicated that HRA’s should be tax-free under Code sections 105
and 106.
HRA’s can be offered along with Health and Dental Insurance and Section
125 Medical Reimbursement Plans. All can be designed together to create a
package that protects the employees from large medical expenses but
encourages employees to get more involved in their healthcare. Many times
HRA’s are used by companies to decrease health insurance coverage and
premiums and allows the company to self insure for certain lower cost
expenses.
Click here for examples
Benefit Solutions prepares HRA plan documents for organizations and we
act as a third-party administrator for claims. We can help with every
aspect of set-up and ongoing maintenance. Call us for more details.