Health Reimbursement Arrangements (HRA)

What is a Health Reimbursement Arrangement (HRA)?

Note: Generally, partners and sole proprietors are considered self-employed individuals. In addition, a shareholder/employee who owns more than 2% of stock of an S corporation is treated as a partner for purposes of applying the fringe benefit rules. Therefore, these individuals may not qualify for a HRA. They should be able to set up HRA's for their employees and establish an HSA for themselves. Employers should consult with their tax advisor when considering Health Reimbursement Arrangements or any other tax-preferred product.

Health Reimbursement Arrangements (HRA) create an exciting new group medical insurance sales opportunity. Employers want the premium savings provided by switching to a high deductible health care plan.
A Health Reimbursement Arrangement (HRA) is a tax-favored program that allows an employer to reimburse employees for a portion of their medical expenses.
Employers usually fund the health plan account at half the amount of the selected high deductible plan.
Our experience has shown that this level creates a balance between cost sharing and incentives for employees to use health care dollars wisely. Employer contributions are "tax-preferred," which means they are treated like other health benefit contributions.

How does it work?

As employees receive health care, they are reimbursed for qualified expenses up to the amount of their employer-funded health plan account. When those funds are exhausted, employees cover the remainder of the deductible with their own funds. When the deductible is met, the health plan "kicks in." Some of the carriers have designed their products to allow up to half of the employer's unspent contribution to carry over to the next year, providing incentive for thoughtful health care choices. To limit the employers' liability, the maximum an employee can carry over in any year is half the employer's annual contribution.
With the employer-funded health plan account, the employer pays as claims are received rather than depositing dollars into an account as you would with a medical savings account. Fund balances remain with the employer if an employee leaves the company.
The health plan account works well in conjunction with a flexible spending account. Employees can save by paying their share of expenses with pre-tax dollars.

Highlights of Health Reimbursement Arrangements (HRA)

Additional information is available regarding Health Reimbursement Arrangements (HRA) by contacting Rose Valley Insurance Agency. Please call us today at (952) 469-6430 to request a brochure.

Reimbursements are tax deductible to the employer.
Only an employer can reimburse/contribute.
The employer can retain ownership of the funds if an employee terminates.
Employers don't need to pre-fund an account.
Available to any size group.
In general, you'll find that HRA's provide more advantages for employers and HSA's offer more advantages for employees.
The less health services used by group members, the more money the employer saves with an HRA.Provides greater flexiblity in plan design and greater control of cash flow. The employer determines:*

the plan type and payment structures
the maximum reimbursement amount
the types of qualified expenses to be reimbursed (e.g. medical only, deductible only)**
who pays for deductible expenses first - the employer through the HRA or the employee
carry-forward capabilities, amounts and caps
the timetable for making contributions, if employer is pre-funding.

*Or, the employer can select a HRA shelf-plan that has been designed by the carrier which offers a selection of deductibles.

**Qualified medical expenses are defined by the IRS in Publication 502, available at http://www.irs.gov/