The HRA (Health Reimbursement Arrangement) • January 2014

A way for employers to offer benefits on a budget…. Some companies cannot afford to provide employees with a group-based medical plan. Others are finding the premium increases too high to bear. With an HRA, employers are finding another way to offer benefits to their employees while keeping the rising premiums at bay.

Employers able to offer an HRA
All employers can offer a Health Reimbursement Arrangement. However, your type of company will determine whether all your employees are eligible for the program.

  • C-Corporation – all your employees can participate in the HRA.
  • All others – those employees who are owners, partners, and 2%+ shareholders in the company cannot participate. If you would like to provide your nonqualified employees with the same benefits, you can do so using after-tax dollars.

Hiring an HRA Vendor
Some companies run their HRA reimbursement program in-house. If you would like to maintain confidentiality, you can hire an outside vendor. Be prepared to pay approximately $500 annually plus $5 per employee per month.

Setting Eligibility Parameters
The employer sets the minimum hours an employee must work to be eligible for the plan. In addition, the employer determines the waiting period for new hires (will typically match medical enrollment).

Qualifying Expenses
Under the HRA program, the employer determines which expenses will be allowed for reimbursement. This can include all Section 213(d) allowable expenses (for unreimbursed healthcare) or just a subset of these items – such as dental only.

The HRA as a Deductible Bridge
Many employers use their HRA program as a sole means to reimburse part of their medical plan deductible. By doing so, they are “self-funding” part of their medical plan, saving insurance premiums in the process. As an example, ABC Company pays $450 per employee monthly for a $200 deductible plan. By increasing the deductible to $1000, the premiums would decrease to $350 per employee per month. The employer uses this $100 in monthly premium savings per employee to help fund any claims that are sent into the HRA program for reimbursement.

Reimbursement Grace Period
It is standard practice to provide employees with 2 months to submit claims after the plan year ends. For example, if your plan year ends on December 31st, you would allow employees to submit their claims for that plan year through February 28th.

Portability of Coverage
An HRA is an ERISA plan, therefore, it needs to follow the rules of COBRA. If your company must provide COBRA coverage for other coverage, the HRA must be offered under COBRA, too. You may elect to require enrollment in your COBRA medical plan for the participant to be eligible to enroll for the HRA under COBRA.

Rollover of Funds At the beginning of the plan year, the employer determines if fund roll-overs will be allowed at the end of the plan year. With a deductible bridge HRA, the usual practice is to not allow rollovers of unused funds. 

This article is provided for informational purposes only. Please contact your attorney and/or accountant to determine if this information may affect your business. © 2015 GHB Insurance

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