HRA (Health Reimbursement Account)
HRAs are intended to encourage the efficient use of employer-provided health care by fixing employer contributions at a certain projected cost level rather than promising a specific benefit regardless of cost. In June 2002, the IRS provided safe harbor guidance for employer-funded health reimbursement arrangements that permit participants to carry over unused amounts into subsequent years. This arrangement may be offered with a tax-favored basis. To accomplish this requirement, the following must be applied:
- HRA must be solely funded by the employer
- No premium may be charged to the employee for the HRA
- HRA can only reimburse substantiated medical care expenses incurred by employees or former employees
- Unused amounts cannot be cashed out. They can be rolled forward. A terminated employee may be allowed to 'Spend Down' their account after termination.
Types of HRAs
- Stand-Alone - Employer-funded reimbursing for eligible medical expenses. Not integrated with a major medical plan. Can be designed to reimburse out-of-pocket medical expenses not covered by major medical plan, dental or other non-specific out-of-pocket medical expenses, some insurance premiums, or a combination of the above.
- Integrated HRA and HDHC - Employer typically has a major medical plan with a high deductible. Typically a set annual amount is provided for out-of-pocket expenses, for example $1,000. Unused amounts can be carried forward from year-to-year.
Plan design is unlimited. Annual benefits can be accrued monthly or be credited to the employee once a year. An HRA is not required to have a carryover. Carryovers may also be capped. Can also be designed to require FSA participation. Can also be designed so the HRA pays after a FSA. Can specify which types of medical expenses are eligible. Can be broad or very limited.
COBRA does apply. Upon termination, an employee can elect to continue the HRA for a premium. 'Spend Down' option can be offered to eliminate the COBRA election. Other COBRA issues that can be addressed in the Plan Document.
- Illustrate Cost Comparison of HRA Approach v. Traditional Fully Insured Plan
- Assist in Plan Design, Including Plan Design Options and Features
- Draft Plan Documents, Including Plan Document, Summary Plan Description and Corporate Resolution
- Assist Broker in Plan Presentation
- Assist in Group Enrollment
- Provide Participant ID Cards (if necessary) and Plan Materials
- Provide Claims Procedures
- Enter Claims Daily, Process and Disburse Claims Weekly
- Provide Standard Reports Upon Demand
- Provide Plan Review Annually
- Provide COBRA Administration Services
- Troubleshoot Claims Not Properly Processed by Providers