Health Reimbursement Arrangements

What is a Health Reimbursement Arrangement (HRA)?

• Employer funded arrangement in which employees are reimbursed for certain qualified medical expenses
• Qualified expenses must be incurred during the plan year and must diagnose, cure, mitigate, treat or prevent a disease.
• Reimbursement may not be claimed as a deduction on personal income tax returns, nor reimbursed by other health plan coverage.
• An employer with both an FSA and HRA must indicate in the Written Plan Document which plan will pay for the expenses first.
• Funds provided by the employer are deductible and are not taxable as income to the emoloyee.

What common characteristics are found in an HRA?

• Plan designs commonly allow reimbursement for insurance co-pays and/or deductibles under group medical plans
• May cover other medical care expenses such as dental, vision, prescriptions and premiums for accident of health coverage
• May allow any remaining funds to carry over from year to year, while others are written to forfeit unused amounts
• Not subject to the Uniform Coverage rule; employers do not have to pre-fund the accounts
• May provide reimbursements to current and former employees including retirees and their dependents

What are the Federal Requirements for an HRA?

• Code Sections 106 and 106 of the Internal Revenue Service and Notices 2002-45 and 2002-41
• Written Plan Documents and Summary Plan Descriptions must be distributed to all employees
• Annual Discrimination Testing
• Self-employed individuals (partners in a partnership, two percent shareholders of a sub-chaper S corporation and members of an LLC) are not eligible to participate
• Employers with 100 or more eligible employees must file an Annual 5500
• Federal updates as necessary
• COBRA continuation coverage
• HIPAA privacy rules and requirements