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Medical Insurance
Health Reimbursement Arrangements
A Health Reimbursement Arrangement or HRA is a separate arrangement to reimburse employees for all or a portion of the qualified medical expenses not paid by the health insurance policy. An HRA does not require the establishment of a separate funding account, as does a Health Savings Account (HSA) plan.Uses All Employer Funds and Employer Makes All the Decisions
The HRA is designed for companies employing two or more employees, excluding sole-proprietors and owners of subchapter-S corporations from participation. Employer funds are used to reimburse employees for qualified medical expenses in accordance with the employer arrangement. IRS requirements for qualified medical expenses also apply. Employer payments are a tax-deductible business expense and the reimbursement to employees is tax-free.
Since only employer funds are involved, the employer determines the amount to reimburse each year; the amount that can be carried over each year; when to make reimbursements; whether the employee or the employer pays first; and what happens when an employee leaves the company.
Reimburses Employees for Medical Expenses and Allows Carry-over
The arrangement specifies a dollar-limit for the amount of qualified expenses that will be reimbursed to an employee each year. The arrangement can also specify that any unused allocation of funds can be accumulated and carried over to use next year. Since the employer owns the funds until presented with valid receipts, there are no actual funds accumulated that employees own to rollover to a new employer or take with them if they leave the company. An employer could continue to reimburse a former employee if he chooses to do so.
Account Administration by the Company or Third Party Administrator
A simple corporate board resolution can be used to establish the reimbursement arrangement and the company itself can administer it. Usually a TPA is chosen as the most cost-effective and convenient method of drafting and administering the arrangement when more than just a few employees are involved. The TPA collects all the claims, sends a single bill to the employer and reimburses all the employees.
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Pacific Benefit Consultants, Inc. 450 Country Club Rd. Suite 330 Eugene, Oregon 97401 (541) 484-6624 (541) 484-4245 (Fax) (800) 588-8688 (Toll Free) |