What is HRA?:
Internal Revenue Code (IRC) Section 105(h) allows employers to contribute tax-free funds to Health Reimbursement Accounts (HRAs) so employees can pay for certain medical expenses that are not covered by any other source. HRAs can be designed by an employer to fit a variety of needs and program designs. To understand how your HRA is set up, you will have to review your plan documents or other plan information provided by your employer. Source: Benefit Resource Inc.
Here are some HRA Basics:
• HRAs are funded entirely through employer contributions. Your employer will indicate what contributions will be made and at what frequency.
• Your employer will determine the eligibility requirements for receiving HRA contributions. Generally, you must be enrolled in a specific health plan through the employer to receive the funds.
• Your employer may limit the expense types that can be reimbursed through the HRA. Potential eligible medical expenses are defined by IRC Section 213(d) and may include: co-payments, co-insurance, deductible, dental, vision, chiropractic and more. Please see your plan documents for specifics on eligible expenses for your plan.
• Your employer will determine when claims must be submitted and for how long contributed funds will remain available. Some plans work like an FSA (Flexible Spending Account) and the HRA funds must be spent by the end of the plan year. Other plans will roll over from year to year. A Health Reimbursement Arrangement (HRA) is an employer-funded account that helps employees pay for qualified medical expenses not covered by their health plans. HRAs are compatible with all types of health insurance plans and they are owned by the employer.
Pay for out-of-pocket expenses
You can use an HRA to reimburse yourself for many common health care expenses, including over the counter items.
1. An HRA is solely employer funded.
While FSAs and HSAs allow employees to contribute pre-tax dollars through payroll, an HRA is solely funded by the employer (or plan sponsor). This is a fundamental component of HRA rules.
2. HRAs generally need to be integrated (at least for now)
An HRA must typically be offered alongside a comprehensive health plan. This is what is referred to as an “Integrated HRA”. But, why is an “Integrated HRA” necessary? An HRA is currently defined as a group health plan. The Affordable Care Act (commonly referred to as Health Care Reform) placed certain restrictions on group health plans. Specifically, benefits paid out of group health plans cannot have annual limits. When an HRA is integrated, the underlying health plan solves the requirement regarding annual limits. However, a stand-alone HRA with a specific contribution amount is viewed as being in violation of the annual limit rule.
3. An HRA may not automatically cover your dependents
An HRA can be designed to cover just an employee or an employee and their dependents. Every HRA plan will have Plan Documents that define its specific HRA rules. If dependents are to be covered by an employee’s HRA, they must also be enrolled in a group health plan. From a practical perspective, it means dependents must be identified on claims and they, too, must be eligible.
4. The expenses covered by an HRA can vary
While Publication 502 can often be used as a guide to determine if an expense is likely eligible under an HRA, it will not always be the determining authority. Employers have the ability to place additional restrictions on what is considered an eligible expense for HRA reimbursement purposes. HRA participants should always refer to their plan documentation for additional guidance on what expenses are covered.
5. Employers set many of the rules for HRAs If you haven’t gathered by now, HRAs are not always black and white. HRA rules can be complicated. And, there are pros and cons to HRAs. The most common factors determined by the employer, include:
• How much will be allocated to employees and what causes the amount to vary
• What categories of expenses are eligible for reimbursement
• What happens to funds at the end of the plan year when an employee is no longer eligible, is terminated and/or retires
• When claims need to be incurred and submitted for reimbursement
For Group or Individual health insurance, Medicare Advantage plan, Medicare Supplement plan or Medicare Drug plan contact Sudhir Mathuria at 713-771-2900.
Health Reimursement Account (HRA) Basics
What is HRA?: