Health Reimbursement Account (HRAs)
What is a Health Reimbursement Account?
Authorized by the Internal Revenue Service through Revenue Ruling 2002-41 and IRS Notice 2002-45, Health Reimbursement Accounts (HRAs) are employer funded accounts which may be offered in conjunction with High Deductible Health Coverage (HDHC) or as a stand alone plan to reimburse certain qualified out-of-pocket medical expenses including insurance premiums incurred by an employee or former employees (including retirees).
How do you establish and maintain a Plan?
In order for you to implement an HRA you must have a written plan document in place. In addition, you are required to provide each employee with a Summary Plan Description (SPD). A SPD is a summary of the Plan Document. Considered a self-insured health plan, you must annually pass non-discrimination testing to remain in compliance with Plan requirements. As a self-insured Health Plan both COBRA and HIPAA will apply.
Who can have a plan?
Any type of an employer can offer a HRA to its employees. However, 2% or more owners of an S-Corporation, Partners in a partnership and Sole Proprietors are not eligible to participate in their company's plan.
Carryovers
In their most recent guidance, the IRS permits unused funds to be carried over from year to year. However, carryovers are not required.
Plan Design
When designing an HRA, the following items should be considered:
- Design type: Stand-alone HRA or a Consumer Driven Health Plan (HDHP with HRA)
- HRA & Medical Flexible Spending Account (MFSA): If the employer offers an MFSA, the HRA plan document should state that the MFSA pays first
- Carryovers: Permitted or not permitted?
- Terminated Employees — Are they eligible to spend down their HRA?
Do you have to file a Form 5500 return?
If you have 100 or more participants in your HRA as of the beginning of a plan year , you will have to file a Form 5500 return. HFS can assist you with the preparation of this return.