HRA's have been referred to by many names over the last few years such as personal savings accounts, personal care accounts, defined contribution plans, or consumer-driven health care plans.
Expenses not reimbursed by health insurance are one way employer groups are utilizing HRA's. With an HRA, the employer funds an account from which the employee is reimbursed for qualified medical expenses, such as co-pays, deductibles, vision care, prescriptions, long-term care, medical insurance, chiropractic care, and most dental expenses. Over-the-counter drugs that are medically necessary may also be reimbursed through an HRA. Reimbursements from the HRA are not taxed to the employee, and are deductible by the employer.
The most common use of an HRA is in combination with a High Deductible Health Coverage (HDHC) Plan. HRA's can enhance a company's benefit package while helping to contain costs and boost employee morale. For example, you can combine your HRA with a higher-deductible health insurance plan. The employer benefits from reduced insurance costs, but the effect to the employee is cushioned with an HRA.
HRA's provide employers with a lot of flexibility in Plan design. Limits can be set on types of services reimbursed by an HRA. Amounts contributed to an HRA can be in a lump sum or in increments throughout the year. This is in contrast to a Section 125 Medical FSA where the employer can be liable for the full amount on the first day of the plan. You can also choose to carry over unused HRA funds to the next plan year, or have all or a portion of the unused HRA funds forfeited at the end of the year.
HRA accounts can pay the same expenses as a Section 125 Medical Reimbursement Flexible Spending Account (FSA), however, unlike an FSA only employers can contribute to the HRA.
In contrast to the "use-it-or-lose-it" rule of cafeteria plans, the employee gets to carry forward any unused HRA account funds. Depending on the HRA design options elected by the employer, their employees may request reimbursement for medical expenses at the time services are rendered, accumulate them for reimbursement in the future, or save the funds in the HRA for retiree health benefits.
Sole Proprietors, partnerships, regular corporations, S corporations, limited liability companies (LLC's), professional corporations, and 501(c)3 not-for-profits can establish an HRA plan.
Individuals that can not personally participate in an HRA include sole proprietors, partners, members of an LLC (in most cases), or individuals owning more than 2% of an S corporation. Although these specific owners can not personally participate they can still sponsor an HRA and benefit from the write-off.
Control. HRA's allow you as an employer to retain control of funds and decide what type of expenses will be reimbursed, and also whether the HRA funds will carry over from year to year. By adding a higher-deductible insurance plan with your HRA plan you can cut the cost of providing healthcare benefits to your employees.
HRA Financial Flexibility. HRA's don't require pre funding; you may simply reimburse plan members for eligible expenses as they occur. As a result, your organization's assets are freed up for other uses.
Savings with an HRA. Reimbursements through an HRA are tax deductible for you as the employer and tax exempt for your employees. That means everyone experiences a tax advantage when you select an HRA. Employers and employees also enjoy the lower premiums that go with high-deductible health plans.
Choice with HRA's There are no restrictions on the type of health plan that can be paired with an HRA, so you are free to choose the perfect plan for your employees. Also, employees get to decide where and when to spend the HRA funds. They are free to choose healthcare providers and shop for better prices.
How To Start an HRA Plan. You can start your HRA at any time. One of our consultants will contact you regarding design and setup options and administrative decisions.
Call us at 1-800-289-8376 for personal assistance.
