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HRAs (Health Reimbursement Arrangements), Defined Contribution or DC Style Health Care and CDHPs (Consumer Driven Health Plans) encourage more efficient use of employer capital by freezing contribution costs at a specific, set cost (defined contribution) vs. promising a specific benefit, regardless of cost (defined benefit). Both shift “ownership responsibility” to employees making them better, smarter consumers.

We can combine a FlexCash compensation & benefits plan with an HRA account as part of a strategic plan for overall compensation and benefits however, they must be funded separately as no employee deferrals may be included in the HRA.

Possible features of an HRA include:

  • Tax-free withdrawals for qualified medical expenses
  • Carryover of unused credits, without limit, from year to year
  • Credits in an HRA do not earn interest
  • Credits in an HRA may be designed to forfeit if you switch health plans, or if EEs terminate employment other than to retire
  • Your HRA is administered by the health plan

 An HRA is an arrangement that:

(1) must be funded solely by the employer and not pursuant to a salary reduction election ;

(2) reimburses the employee for medical care expenses as defined in Code Section 213(d), for medical expenses incurred only by the employee, spouse or dependent; and

(3) may allow employees to carry forward any unused portion of the funds to subsequent coverage periods

As long as the rules are met the value of both employer-provided coverage and medical reimbursements can be excluded from employees’ gross income under Code Sections 105(b) and 106 but must be fully paid for by the employer, e.g., no employee salary reductions. 

Employers may deduct reimbursements of employee medical expenses as a business expense.

HRA can be offered by an employer as a stand-alone arrangement or as part of a consumer-driven health plan or defined contribution health plan

Unlike FSAs or cafeteria plans, HRAs may not pay out taxable benefits as an alternative to medical, dental or vision expenses. Thus, amounts in an HRA cannot be converted to a severance arrangement, pension arrangement or death benefit. An HRA can be offered alone or bundled with other medical plans (i.e., for ultimate flexibility combine a FlexCash compensation & benefits plan with an HRA account).

HRAs may reimburse all types of substantiated medical expenses, including premiums for other health insurance coverage - such as a COBRA premium. An HRA may not reimburse an expense incurred before the HRA came into existence or before the employee was enrolled in the HRA.

Don’t use the “Fire, Ready, Aim” approach; let us help you measure it up, take aim & hit with deadly accuracy!

More:

HRAs are similar to Flexible Spending Accounts (FSAs) except that employees do not lose their money at the end of the year. Unused dollars may be rolled-over into the next year!

HRAs are similar to Medical Savings Accounts (MSAs) except that HRAs are funded by employers, HRAs are available to employers of all sizes, and HRAs are flexible in design.

HRAs permit the employee to accumulate money for future healthcare needs such as retirement healthcare expenses.

HRAs allow employers to redefine employer-employee healthcare financing and responsibility.

HRAs allow employers to offer a high deductible plan and allocate the savings to the HRA for future employee-directed healthcare.

HRAs will provide money for COBRA premiums, which also will reduce the number of people who find themselves temporarily uninsured.

HRAs are authorized by the U.S. Treasury Department and were announced on June 26, 2002.

What are HRS's (Health Reimbursement Arrangements)?

Also known as Health Reimbursement Accounts and HRAs, these newly authorized plans offer great promise for both employers and employees.

HRAs are defined contribution healthcare plans, not defined benefit plans.

They are employer-sponsored plans that combine the best aspects of Flexible Spending Accounts (FSAs) and Medical Savings Accounts (MSAs).

HRAs allow employees to roll-over unused balances at the end of the year - so employees will not complain that they may lose their money.

HRAs do not require that employers advance claims payments to employees or healthcare providers during the early months of the plan year.

HRAs are provided with employer dollars, not employee salary reductions, so HRAs have greater employee acceptance.

HRAs permit the employer to reduce health plan costs by coupling the HRA with a high-deductible (and usually lower-cost) health plan.

HRAs even the playing field between the group purchasing power of larger employers and smaller employers

Don’t use the “Fire, Ready, Aim” approach; let us help you measure it up, take aim & hit with deadly accuracy!

HRA NEWs 04/05/05: Employees in a HRA where the employer reimburses workers for certain medical expenses do not have to count the reimbursement as income concludes guidance on HRAs from the IRS released 04/05/05. The HRA scenario deemed to be eligible for favorable tax treatment provides for payments that are for substantiated health expenses by current and former workers and their spouses and dependents. At the death of the deceased worker's spouse and last dependent (or the death of the employee who has no dependents), any unused funds in the account are forfeited. Employees in such a plan have no right to get cash or any other benefit other than the reimbursement of substantiated medical expenses. If an HRA provides for a cash payment to the worker of any unused reimbursement amount, the worker would have to report those funds as compensation for tax purposes and in plans that pay regardless of whether medical expenses have been incurred, all amounts have to be included in a worker's gross income. This IRS document lays out several HRA scenarios in the document and discusses the tax status of each. When employees retire, employers can make tax-free contributions to HRAs equal to the value of all or a portion of the retiree’s accumulated unused vacation and sick leave. The amount credited to the HRA must be used for medical-related expenses. Ruling 2005-24  Return to the Main HOME Page


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