 Recently unveiled, the new Health Reimbursement Arrangement plan conveniently combines some of the best aspects of Flexible Spending Accounts (FSA's) and Medical Savings Accounts (MSA's). This employer-funded and sponsored program provides the employer with a way to give their employees freedom of choice in healthcare planning while controlling their own costs. How an HRA Works By redesigning your insurance plan to help reduce the premiums you can use the HRA to reimburse your employees for specified out-of-pocket costs such as deductibles or co-pays. The dollars con- tributed to the HRA are usually offset by the reduction in premiums due to the cost of shifting to the employee. Expenses include:
- Co-insurance amounts
- Dental/Orthodontic fees
- Eyeglasses, including the exam fee
- Health insurance deductibles
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- Hospital bills
- Insulin and diabetic supplies
- Mileage for medical care
- Obstetrical expenses
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HRA Advantages for the Employer HRA's allow the employer to offer a high deductible insurance plan and contribute the premium savings to the HRA for future employee medical care insurance premium expenses on a pretax basis. They also allow employer contributions to be 100% tax deductible and are not subject to federal, state, or social security taxes. The employer can define who can participate, employer contribution amount, payment frequency, and expenses covered. They do not require that employers advance claims payment therefore reducing employer risk and are available to employers of all sizes. HRA Advantages for the Employee HRA's provide an employee with funds contributed by the employer to use for medical expenses and any unused dollars can be rolled-over into the next year. They allow the employee to accumulate money for future medical needs such as retirement healthcare expenses. HRA's also provide money for COBRA premiums. Requirements of the HRA The employer must have an updated Plan Document on-site. Benefit Advantage will assist in developing a personalized plan design and will maintain all updates for the Plan Document. The IRS prohibits certain owners and their immediate family members from participating in the HRA. These include: - More than 2% shareholders in a Subchapter S, and their spouses, parents, children, and grandchildren.
- Partners in partnership including LLP's and LLD's that operate under partnership rules (spouses and dependents are eligible).
- Sole proprietors (spouses and dependents are eligible.
*Note: While owners may not participate, employees of these types of business can participate. HRA Forms HRA Eligible Expenses |
