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

Presented byPresented byJaeger & Flynn Assoc., Inc. Jaeger & Flynn Assoc., Inc.

Presented byPresented byJaeger & Flynn Assoc., Inc. Jaeger & Flynn Assoc., Inc.

All About HRAsAll About HRAsAll About HRAsAll About HRAs

HRA OverviewHRA Overview

Mostly offered with a high-deductible Mostly offered with a high-deductible health plan (HDHP)health plan (HDHP)

May be offered as a stand-aloneMay be offered as a stand-alone Employers may limit to retiree Employers may limit to retiree

benefits, preventive care or other benefits, preventive care or other usesuses

Benefits of HRAsBenefits of HRAs

Funded exclusively by employerFunded exclusively by employer Combined with an HDHP, can result Combined with an HDHP, can result

in considerable premium savingsin considerable premium savings Employees have freedom of choice in Employees have freedom of choice in

health care planninghealth care planning Employees manage their own costsEmployees manage their own costs

Benefits of HRAs Benefits of HRAs

Employers can use Employers can use tax-deductible dollars tax-deductible dollars for employees’ for employees’ qualified medical qualified medical expensesexpenses

Employees are able to Employees are able to accrue funds for accrue funds for future medical needsfuture medical needs

Advantages for EmployersAdvantages for Employers

Unused balances often revert to Unused balances often revert to employersemployers

Available to companies of any sizeAvailable to companies of any size Employers do not need to pre-fund Employers do not need to pre-fund Employers decide:Employers decide:

1)1) Amount contributedAmount contributed2)2) Who is eligibleWho is eligible3)3) If carryovers will be allowedIf carryovers will be allowed4)4) How reimbursements will be processedHow reimbursements will be processed5)5) How the HRA will be fundedHow the HRA will be funded6)6) The contribution scheduleThe contribution schedule

What Does an HRA Reimburse?What Does an HRA Reimburse?

Substantiated medical expenses Substantiated medical expenses described in Code § 213(d), including described in Code § 213(d), including out-of-pocket medical expenses and out-of-pocket medical expenses and

health insurance, as well as long-term health insurance, as well as long-term care premiums, accrued by the care premiums, accrued by the

employee, spouse or dependents and employee, spouse or dependents and paid by the employee.paid by the employee.

What Are Qualifying Medical What Are Qualifying Medical Expenses?Expenses?

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

HRA CoverageHRA Coverage

Employer establishes:Employer establishes: Coverage periodCoverage period Limit on reimbursements for that Limit on reimbursements for that

periodperiod Limit can vary between employeesLimit can vary between employees Employer can offer higher limit to employees Employer can offer higher limit to employees

with higher coinsurance paymentswith higher coinsurance payments

HRA CoverageHRA Coverage

Current employeesCurrent employees Only those participating in an HDHPOnly those participating in an HDHP Only those participating in an HSAOnly those participating in an HSA

Former employees (including retirees)Former employees (including retirees) Their spouses/dependentsTheir spouses/dependents Surviving spouse/dependents of deceased Surviving spouse/dependents of deceased

employeesemployees

Employers make Employers make the rules about the rules about whom HRAs can whom HRAs can cover, which may cover, which may include:include:

HRA CoverageHRA Coverage

Self-employed individuals, including:Self-employed individuals, including: Partners in a partnershipPartners in a partnership andand

More than 2 percent shareholders in an More than 2 percent shareholders in an S corporation S corporation

Self-employed individuals cannot Self-employed individuals cannot participate on a tax-favored basisparticipate on a tax-favored basis

HRA ClassificationHRA Classification

Viewed as a welfare benefit planViewed as a welfare benefit plan Is covered under ERISA unless it is a Is covered under ERISA unless it is a

governmental or church plangovernmental or church plan

COBRA applies to an HRACOBRA applies to an HRA Those continuing health coverage under Those continuing health coverage under

COBRA should be entitled to receive the COBRA should be entitled to receive the maximum reimbursement amountmaximum reimbursement amount

The issues surrounding HRAs/COBRA are The issues surrounding HRAs/COBRA are complexcomplex

What is the Difference Between What is the Difference Between an HRA and an HSA?an HRA and an HSA?

No HDHP is required with an HRANo HDHP is required with an HRA Stand-alone HRAs or HRAs combined with another Stand-alone HRAs or HRAs combined with another

health plan are allowedhealth plan are allowed

• HRAs do not require minimum deductibles HRAs do not require minimum deductibles and maximum out-of-pocket limitationsand maximum out-of-pocket limitations

• HRAs give plan sponsors more controlHRAs give plan sponsors more control• Only the employer may contributeOnly the employer may contribute

What is the Difference Between What is the Difference Between an HRA and an HSA?an HRA and an HSA?

HRAs have no limits on how much an HRAs have no limits on how much an employer can contribute in any given employer can contribute in any given month, year or other coverage periodmonth, year or other coverage period

Claims submitted for reimbursement Claims submitted for reimbursement must be substantiatedmust be substantiated

HRA may not reimburse non-medical HRA may not reimburse non-medical expensesexpenses

Interest earned on an HRA is paid to Interest earned on an HRA is paid to employeremployer

HRA and FSA RulesHRA and FSA Rules

HRAs are generally, but not always, FSAs – HRAs are generally, but not always, FSAs – yet are not subject to the following FSA yet are not subject to the following FSA

rules:rules: Prohibition against carrying unused benefits Prohibition against carrying unused benefits

into future plan years does not applyinto future plan years does not apply The mandatory 12-month period of coverage The mandatory 12-month period of coverage

does not applydoes not apply Gives employers more flexibility in designing an HRAGives employers more flexibility in designing an HRA

The uniform coverage rule does not applyThe uniform coverage rule does not apply The maximum amount of reimbursement under an HRA does The maximum amount of reimbursement under an HRA does

not have to be available at all times during the period of not have to be available at all times during the period of coveragecoverage

HRA and FSA RulesHRA and FSA Rules

HRAs are generally, but not always, FSAs – yet HRAs are generally, but not always, FSAs – yet are not subject to the following FSA rules:are not subject to the following FSA rules:

An expense incurred by a participant in one year An expense incurred by a participant in one year may be paid out of the HRA balance attributable may be paid out of the HRA balance attributable to a subsequent year, provided that:to a subsequent year, provided that:

The individual was a participant when the expense was incurredThe individual was a participant when the expense was incurred

and and That individual remains a participant in the subsequent yearThat individual remains a participant in the subsequent year

HRAs may reimburse health insurance premiumsHRAs may reimburse health insurance premiums

HSAs and HRAsHSAs and HRAs

An individual may still make An individual may still make contributions to an HSA while covered contributions to an HSA while covered by certain types of FSAs/HRAs. The IRS by certain types of FSAs/HRAs. The IRS sets forth four examples of acceptable sets forth four examples of acceptable

plan coordination, which follow.plan coordination, which follow.

Types of HRAsTypes of HRAs

Pays or reimburses Section 213(d) Pays or reimburses Section 213(d) medical expenses that are “permitted medical expenses that are “permitted coverage” (i.e., dental, vision)coverage” (i.e., dental, vision)

For example, an individual covered For example, an individual covered under an HDHP and a Limited Purpose under an HDHP and a Limited Purpose FSA continues to be eligible to FSA continues to be eligible to contribute to an HSAcontribute to an HSA

The FSA only pays or reimburses The FSA only pays or reimburses expenses for dental or vision care not expenses for dental or vision care not reimbursed by any other sourcereimbursed by any other source

Limited Purpose FSA/HRALimited Purpose FSA/HRA

Types of HRAsTypes of HRAs

Post-Deductible FSA/HRAPost-Deductible FSA/HRA Pays or reimburses medical expenses incurred Pays or reimburses medical expenses incurred

after the individual meets the minimum annual after the individual meets the minimum annual deductible within the HDHPdeductible within the HDHP

For example, an individual may seek For example, an individual may seek reimbursement for amounts paid as copayments or reimbursement for amounts paid as copayments or coinsurancecoinsurance

Funds within an FSA are subject to the “use-it-or-Funds within an FSA are subject to the “use-it-or-lose-it” rule; in general, the individual will forfeit lose-it” rule; in general, the individual will forfeit contributions made to FSA if deductible is not metcontributions made to FSA if deductible is not met

Types of HRAsTypes of HRAs

Suspended HRASuspended HRA Pursuant to an election made before the beginning Pursuant to an election made before the beginning

of the HRA coverage periodof the HRA coverage period Does not pay or reimburse at any time any medical Does not pay or reimburse at any time any medical

expenses incurred during suspension period, expenses incurred during suspension period, except preventive care or “permitted coverage”except preventive care or “permitted coverage”

Once suspension period ends, individual is no Once suspension period ends, individual is no longer eligible to contribute to an HSA because longer eligible to contribute to an HSA because he/she is entitled to receive Section 213(d) medical he/she is entitled to receive Section 213(d) medical expenses from the HRAexpenses from the HRA

Types of HRAsTypes of HRAs

Retirement HRARetirement HRA Pays or reimburses medical expenses incurred Pays or reimburses medical expenses incurred

after the individual retiresafter the individual retires After retirement, individual is not eligible to After retirement, individual is not eligible to

contribute to an HSAcontribute to an HSA

Thanks for your Thanks for your attention!attention!

More questions? Contact Jaeger & More questions? Contact Jaeger & Flynn Assoc., Inc. Flynn Assoc., Inc.

For more information, visit the IRS website: www.irs.gov.