Designing a Health Reimbursement Arrangement
Health Reimbursement Arrangements, or HRAs, can be a powerful addition to an employer’s benefit package. The benefit helps pay for out of pocket medical expenses for employees and can be customized based on the employer’s preferences. Listed below are several features of HRAs and some options available for each.
HRAs can be designed to reimburse all eligible expenses as allowed by the IRS, including certain insurance premiums. An employer who is also offering a flexible spending account (FSA) and wants the plans to work the same for participants may consider designing their HRA to reimburse all eligible expenses. This allows claims to move from one benefit to the next with little to no disruption for the participant.
Another option available to employers is to specify the type of expenses the HRA will reimburse. For example, employers who are offering a high deductible health plan can establish the HRA to reimburse medical deductible expenses. This allows the employer and employee to save money on the insurance premiums and still assist with the cost of a higher deductible.
Maximum Contribution Amount
The maximum amount contributed to the HRA can be established by the employer; there is no IRS limit on the amount that can be contributed. Employers can choose to contribute the same rate for all employees, or can vary the amount based on the level of insurance coverage selected by the employee. For example, employees who have self-only insurance coverage may receive $500 while employees who have family coverage may receive $1,000. As long as the amount is not based on the employee’s compensation, years of service with the employer, or other criteria that discriminates in favor of highly compensated employees, the HRA contribution amount does not have to be the same for all employees.
Funds Remaining After End of Plan Year
Another design feature available for HRAs is the ability for remaining funds to rollover to the new plan year or be forfeit. If the rollover option is selected, the employer can choose to have all remaining funds roll forward, a percentage of remaining funds, or a specific dollar amount. The funds then become available in the new plan year for employees to use towards expenses in that plan year.
While there are many options available when designing an HRA, it is important to remember that the plan meets the employer’s needs as they work to provide a comprehensive benefit package for employees.
BusinessPlans, Inc. – myCafeteriaPlan does not intend to provide legal or tax advice and information contained in this article should not be interpreted as such. Regulations governing pretax plans are often open to interpretation and should be reviewed with your legal or tax advisor before making any decisions regarding your plan.