Health Reimbursement Arrangements (HRA)

On June 26, 2002 the Treasury Department and Internal Revenue Service issued guidance clarifying the tax treatment of plans maintained by some employers now known as “Health Reimbursement Arrangements" or "HRAs”. The guidance consists of Notice 2002-45 and Revenue Ruling 2002-41.

In response to the compounding double digit increases in the cost of medical plans, a growing number of employers have been designing new medical plan options, sometimes referred to as Consumer Driven Health Plans or Patient Directed Health Care, that include higher deductibles and cost sharing coupled with an HRA.

Other employers are designing HRAs to address Postemployment Benefit Needs for employees and retirees. In fact, HRAs are projected to play a major role in state and local government’s strategies addressing GASB 45 reporting requirements. A major shift is projected from the defined benefit approach for postretirement medical benefits to defined contribution plans – similar to the shift in the 1980s from defined benefit pension plans to 401(k) and 403(b) plans.

HRAs are similar to Health Care Reimbursement Accounts or FSAs, but different. The HRA must:

  • Be entirely employer funded
  • Pay only for substantiated section 213 medical expenses

And may allow for:

  • Carryover of unused amounts to future years
  • Reimbursement to employees, including retirees, for health insurance premiums – including COBRA and Long Term Care Insurance
  • Continued access to funds by former employees and retirees

Each employer’s plan document (the legal document that governs their HRA plan) defines eligibility and qualified expenses. Qualified expenses may or may not include all expenses allowed under the Internal Revenue Code as listed above. The guidance gives employers significant latitude in HRA plan design. HRA plans are being offered along with high deductible medical plans, allowing employers to achieve insurance premium savings and minimize the impact on employees. Other HRA plans allow for carryover of annual unused account balances to accumulate for funding post retirement medical benefits for retirees not eligible to continue in the employer sponsored medical plans.

Other sources for funding HRA plans include:

  • Early Retirement Incentive Plans
  • Reduction in Force Plans
  • Retiree Contributions for Unused Sick and Vacation Pay

Tri-Star provides the services below, in full or individually to meet client needs.

Plan Design

  • Consultation on plan design
  • Preparation of Plan Document

Enrollment Communication

  • Enrollment fliers for open enrollment and new hires

Enrollment/Account Maintenance

  • Automatic enrollment, by plan design, captured via employer data file feed
  • On-Line annual enrollment through a secure web-site
  • Paper enrollment available
  • New hires, changes in coverage, terminations, etc. maintained via electronic feeds from employers

Claims Reimbursement

  • Auto adjudication and payment of claims processed through a data file feed from your insurance carrier
  • Next day processing of on-line claims filing with follow up faxed supporting documentation
  • Optional fax or mailing of paper claims

Ongoing Participant Communication

  • Welcome letter via email
  • Account status with each reimbursement & periodic account reminders
  • On-line, real-time, 24/7 account detail and summary
  • Blog for current topic updates
  • Live chat for customer inquiries

Employer Reporting

  • Weekly reimbursement registers
  • Monthly status reports via secure email
  • Customized reporting on request, available from in-house software

Customer Service

  • Toll-free, live, customer service representative available for participant and employer support
  • On-line account access 24/7
  • On-line forms and links to Internal Revenue Service topics

Plan Compliance

  • Qualifying expense review
  • Discrimination testing services
  • Plan document compliance

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