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Presented by Jaeger & Flynn Assoc., Inc. Presented by Jaeger & Flynn Assoc., Inc. All About HRAs.

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Presentation on theme: "Presented by Jaeger & Flynn Assoc., Inc. Presented by Jaeger & Flynn Assoc., Inc. All About HRAs."— Presentation transcript:

1 Presented by Jaeger & Flynn Assoc., Inc. Presented by Jaeger & Flynn Assoc., Inc. All About HRAs

2 HRA Overview Mostly offered with a high-deductible health plan (HDHP) Mostly offered with a high-deductible health plan (HDHP) May be offered as a stand-alone May be offered as a stand-alone Employers may limit to retiree benefits, preventive care or other uses Employers may limit to retiree benefits, preventive care or other uses

3 Benefits of HRAs Funded exclusively by employer Funded exclusively by employer Combined with an HDHP, can result in considerable premium savings Combined with an HDHP, can result in considerable premium savings Employees have freedom of choice in health care planning Employees have freedom of choice in health care planning Employees manage their own costs Employees manage their own costs

4 Benefits of HRAs Employers can use tax- deductible dollars for employees qualified medical expenses Employers can use tax- deductible dollars for employees qualified medical expenses Employees are able to accrue funds for future medical needs Employees are able to accrue funds for future medical needs

5 Advantages for Employers Unused balances often revert to employers Unused balances often revert to employers Available to companies of any size Available to companies of any size Employers do not need to pre-fund Employers do not need to pre-fund Employers decide: Employers decide: 1) Amount contributed 2) Who is eligible 3) If carryovers will be allowed 4) How reimbursements will be processed 5) How the HRA will be funded 6) The contribution schedule

6 What Does an HRA Reimburse? Substantiated medical expenses described in Code § 213(d), including out-of-pocket medical expenses and health insurance, as well as long-term care premiums, accrued by the employee, spouse or dependents and paid by the employee.

7 What Are Qualifying Medical Expenses? According to the IRS, they are The costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. They include the costs of equipment, supplies and diagnostic devices needed for these purposes. They also include dental expenses.

8 HRA Coverage Employer establishes: Coverage period Coverage period Limit on reimbursements for that period Limit on reimbursements for that period Limit can vary between employees Limit can vary between employees Employer can offer higher limit to employees with higher coinsurance payments Employer can offer higher limit to employees with higher coinsurance payments

9 HRA Coverage Current employees Current employees Only those participating in an HDHP Only those participating in an HDHP Only those participating in an HSA Only those participating in an HSA Former employees (including retirees) Former employees (including retirees) Their spouses/dependents Their spouses/dependents Surviving spouse/dependents of deceased employees Surviving spouse/dependents of deceased employees Employers make the rules about whom HRAs can cover, which may include:

10 HRA Coverage Self-employed individuals, including: Partners in a partnership Partners in a partnershipand More than 2 percent shareholders in an S corporation More than 2 percent shareholders in an S corporation Self-employed individuals cannot participate on a tax-favored basis

11 HRA Classification Viewed as a welfare benefit plan Viewed as a welfare benefit plan Is covered under ERISA unless it is a governmental or church plan Is covered under ERISA unless it is a governmental or church plan COBRA applies to an HRA COBRA applies to an HRA Those continuing health coverage under COBRA should be entitled to receive the maximum reimbursement amount Those continuing health coverage under COBRA should be entitled to receive the maximum reimbursement amount The issues surrounding HRAs/COBRA are complex The issues surrounding HRAs/COBRA are complex

12 What is the Difference Between an HRA and an HSA? No HDHP is required with an HRA No HDHP is required with an HRA Stand-alone HRAs or HRAs combined with another health plan are allowed Stand-alone HRAs or HRAs combined with another health plan are allowed HRAs do not require minimum deductibles and maximum out-of-pocket limitations HRAs do not require minimum deductibles and maximum out-of-pocket limitations HRAs give plan sponsors more control HRAs give plan sponsors more control Only the employer may contribute Only the employer may contribute

13 What is the Difference Between an HRA and an HSA? HRAs have no limits on how much an employer can contribute in any given month, year or other coverage period HRAs have no limits on how much an employer can contribute in any given month, year or other coverage period Claims submitted for reimbursement must be substantiated Claims submitted for reimbursement must be substantiated HRA may not reimburse non-medical expenses HRA may not reimburse non-medical expenses Interest earned on an HRA is paid to employer Interest earned on an HRA is paid to employer

14 HRA and FSA Rules HRAs are generally, but not always, FSAs – yet are not subject to the following FSA rules: Prohibition against carrying unused benefits into future plan years does not apply Prohibition against carrying unused benefits into future plan years does not apply The mandatory 12-month period of coverage does not apply The mandatory 12-month period of coverage does not apply Gives employers more flexibility in designing an HRA Gives employers more flexibility in designing an HRA The uniform coverage rule does not apply The uniform coverage rule does not apply The maximum amount of reimbursement under an HRA does not have to be available at all times during the period of coverage The maximum amount of reimbursement under an HRA does not have to be available at all times during the period of coverage

15 HRA and FSA Rules HRAs are generally, but not always, FSAs – yet are not subject to the following FSA rules: An expense incurred by a participant in one year may be paid out of the HRA balance attributable to a subsequent year, provided that: An expense incurred by a participant in one year may be paid out of the HRA balance attributable to a subsequent year, provided that: The individual was a participant when the expense was incurred The individual was a participant when the expense was incurredand That individual remains a participant in the subsequent year That individual remains a participant in the subsequent year HRAs may reimburse health insurance premiums HRAs may reimburse health insurance premiums

16 HSAs and HRAs An individual may still make contributions to an HSA while covered by certain types of FSAs/HRAs. The IRS sets forth four examples of acceptable plan coordination, which follow.

17 Types of HRAs Pays or reimburses Section 213(d) medical expenses that are permitted coverage (i.e., dental, vision) Pays or reimburses Section 213(d) medical expenses that are permitted coverage (i.e., dental, vision) For example, an individual covered under an HDHP and a Limited Purpose FSA continues to be eligible to contribute to an HSA For example, an individual covered under an HDHP and a Limited Purpose FSA continues to be eligible to contribute to an HSA The FSA only pays or reimburses expenses for dental or vision care not reimbursed by any other source The FSA only pays or reimburses expenses for dental or vision care not reimbursed by any other source Limited Purpose FSA/HRA

18 Types of HRAs Post-Deductible FSA/HRA Pays or reimburses medical expenses incurred after the individual meets the minimum annual deductible within the HDHP Pays or reimburses medical expenses incurred after the individual meets the minimum annual deductible within the HDHP For example, an individual may seek reimbursement for amounts paid as copayments or coinsurance For example, an individual may seek reimbursement for amounts paid as copayments or coinsurance Funds within an FSA are subject to the use-it-or- lose-it rule; in general, the individual will forfeit contributions made to FSA if deductible is not met Funds within an FSA are subject to the use-it-or- lose-it rule; in general, the individual will forfeit contributions made to FSA if deductible is not met

19 Types of HRAs Suspended HRA Pursuant to an election made before the beginning of the HRA coverage period Pursuant to an election made before the beginning of the HRA coverage period Does not pay or reimburse at any time any medical expenses incurred during suspension period, except preventive care or permitted coverage Does not pay or reimburse at any time any medical expenses incurred during suspension period, except preventive care or permitted coverage Once suspension period ends, individual is no longer eligible to contribute to an HSA because he/she is entitled to receive Section 213(d) medical expenses from the HRA Once suspension period ends, individual is no longer eligible to contribute to an HSA because he/she is entitled to receive Section 213(d) medical expenses from the HRA

20 Types of HRAs Retirement HRA Pays or reimburses medical expenses incurred after the individual retires Pays or reimburses medical expenses incurred after the individual retires After retirement, individual is not eligible to contribute to an HSA After retirement, individual is not eligible to contribute to an HSA

21 Thanks for your attention! More questions? Contact Jaeger & Flynn Assoc., Inc. For more information, visit the IRS website:


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