Presented by Jaeger & Flynn Assoc., Inc. All About HRAs Presented by Jaeger & Flynn Assoc., Inc.

HRA Overview Mostly offered with a high-deductible health plan (HDHP) May be offered as a stand-alone Employers may limit to retiree benefits, preventive care or other uses

Benefits of HRAs Funded exclusively by employer Combined with an HDHP, can result in considerable premium savings Employees have freedom of choice in health care planning Employees manage their own costs

Benefits of HRAs Employers can use tax-deductible dollars for employees’ qualified medical expenses Employees are able to accrue funds for future medical needs

Advantages for Employers Unused balances often revert to employers Available to companies of any size Employers do not need to pre-fund Employers decide: Amount contributed Who is eligible If carryovers will be allowed How reimbursements will be processed How the HRA will be funded The contribution schedule

What Does an HRA Reimburse? Substantiated medical expenses described in Code § 213(d), including out-of-pocket medical expenses and health insurance, as well as long-term care premiums, accrued by the employee, spouse or dependents and paid by the employee.

What Are Qualifying Medical Expenses? According to the IRS, they are “The costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. They include the costs of equipment, supplies and diagnostic devices needed for these purposes. They also include dental expenses.”

HRA Coverage Employer establishes: Coverage period Limit on reimbursements for that period Limit can vary between employees Employer can offer higher limit to employees with higher coinsurance payments

HRA Coverage Employers make the rules about whom HRAs can cover, which may include: Current employees Only those participating in an HDHP Only those participating in an HSA Former employees (including retirees) Their spouses/dependents Surviving spouse/dependents of deceased employees

HRA Coverage Self-employed individuals, including: Partners in a partnership and More than 2 percent shareholders in an S corporation Self-employed individuals cannot participate on a tax-favored basis

HRA Classification Viewed as a welfare benefit plan Is covered under ERISA unless it is a governmental or church plan COBRA applies to an HRA Those continuing health coverage under COBRA should be entitled to receive the maximum reimbursement amount The issues surrounding HRAs/COBRA are complex

What is the Difference Between an HRA and an HSA? No HDHP is required with an HRA Stand-alone HRAs or HRAs combined with another health plan are allowed HRAs do not require minimum deductibles and maximum out-of-pocket limitations HRAs give plan sponsors more control Only the employer may contribute

What is the Difference Between an HRA and an HSA? HRAs have no limits on how much an employer can contribute in any given month, year or other coverage period Claims submitted for reimbursement must be substantiated HRA may not reimburse non-medical expenses Interest earned on an HRA is paid to employer

HRA and FSA Rules HRAs are generally, but not always, FSAs – yet are not subject to the following FSA rules: Prohibition against carrying unused benefits into future plan years does not apply The mandatory 12-month period of coverage does not apply Gives employers more flexibility in designing an HRA The uniform coverage rule does not apply The maximum amount of reimbursement under an HRA does not have to be available at all times during the period of coverage

HRA and FSA Rules HRAs are generally, but not always, FSAs – yet are not subject to the following FSA rules: An expense incurred by a participant in one year may be paid out of the HRA balance attributable to a subsequent year, provided that: The individual was a participant when the expense was incurred and That individual remains a participant in the subsequent year HRAs may reimburse health insurance premiums

HSAs and HRAs An individual may still make contributions to an HSA while covered by certain types of FSAs/HRAs. The IRS sets forth four examples of acceptable plan coordination, which follow.

Types of HRAs Limited Purpose FSA/HRA Pays or reimburses Section 213(d) medical expenses that are “permitted coverage” (i.e., dental, vision) For example, an individual covered under an HDHP and a Limited Purpose FSA continues to be eligible to contribute to an HSA The FSA only pays or reimburses expenses for dental or vision care not reimbursed by any other source

Post-Deductible FSA/HRA Types of HRAs Post-Deductible FSA/HRA Pays or reimburses medical expenses incurred after the individual meets the minimum annual deductible within the HDHP For example, an individual may seek reimbursement for amounts paid as copayments or coinsurance Funds within an FSA are subject to the “use-it-or-lose-it” rule; in general, the individual will forfeit contributions made to FSA if deductible is not met

Types of HRAs Suspended HRA Pursuant to an election made before the beginning of the HRA coverage period Does not pay or reimburse at any time any medical expenses incurred during suspension period, except preventive care or “permitted coverage” Once suspension period ends, individual is no longer eligible to contribute to an HSA because he/she is entitled to receive Section 213(d) medical expenses from the HRA

Types of HRAs Retirement HRA Pays or reimburses medical expenses incurred after the individual retires After retirement, individual is not eligible to contribute to an HSA

Thanks for your attention! More questions? Contact Jaeger & Flynn Assoc., Inc. For more information, visit the IRS website: www.irs.gov.