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 Health Reimbursement Arrangements (HRAs)
 

Employers may use HRA plans to fund accounts on behalf of employees for items governed by sections 105 and 106 of the tax code, relating to health expenses and insurance premiums. Common uses are to fund deductibles, self-insurance for dental and/or vision and any other specific health coverage.

The essential components of the HRA plan include a funding mechanism through Sections 105 and 106 of the Internal Revenue Code (IRC) where monies are funded solely by the employer. The employer can hold these funds until needed, and the monies can be rolled over year-to-year depending on the parameters of the plan document. Long Term Care premiums are fundable through the HRA, and there are special rules regarding the priority of payment between the Section 125 account and the HRA for any given benefit. No employee contributions are allowed under an HRA.
 

Possible Scenarios
 

Example 1:

Employer purchases a group health plan with a $2,500 deductible
 

• Through an HRA plan, employer will “buy back” the deductible lowering it down to $500 for the employee

• Employee deductible is now $ 500.00

• Employer exposure is $ 2,000.00 times the number of employees taking coverage

• Employer average payout is about 35% of this exposure

• Depending on how the plan document is drafted, all or portions of the “savings” can be rolled over to fund benefits for the following year

Example 2:

Employer offers an HRA/125 plan combination with a fixed amount available for each employee
 

• Choice of health, dental, vision, long term care and other plans are available, together with amounts that can be applied to covered and not covered out of pocket medical expenses

• Funds can be rolled over to assist other benefit planning in subsequent years

• Employer can retain all or a certain percentage of funds in the HRA when an employee terminates employment to be used to provide benefits for future employees.
   

Under these examples, employers are budgeting the benefit dollars to be available for use by the employees at any time during the plan year and/or for future benefits.

HRAs will require a separate plan document and are subject to non-discrimination testing under Section 105(h) of the IRC.