FAQs - Health Reimbursement Accounts

HRA Links

Governing HRA IRS link:
http://www.irs.gov/pub/irs-drop/n-02-45.pdf

HRA and FSA descriptions:
http://www.irs.gov/publications/p969/ar02.php#d0e1691

"Health Reimbursement Arrangements - A cutting edge tool for health insurance cost management"
By Leo J. Vidal, J.D., M.A., CPA:
https://www.utea.org/educatorResources/healthInsurance/pdfs/NEA%20HRA%20Article.pdf

Health Reimbursement Arrangements - Notice 2002–45
By Lorianne D. Masano of the Office of Division Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities):
http://www.unclefed.com/Tax-Bulls/2002/not02-45.pdf

HRA Information

1. Who owns an HRA?

The employer

2. Who funds the HRA account?

The Employer only

3. How is it funded?

The employer deposits a set amount for each covered individual or family.

4. What is the contribution amount?

No restrictions. For HRAs, the employer determines the minimum and maximum amounts.

5. Is there a "catch-up" contribution provision for older workers?

Not available.

6. Is a pre-tax salary reduction to fund account allowed?

No, employer-funded only.

7. How are claims processed?

Employees will send the claims, with an EOB, to alt Bentley Yates. If eligible, the claims will first be applied against the employee's deductible obligation and FSA, if applicable. Once the employee's obligation has been met, claims will be processed solely under the HRA plan and checks will be generated on the next reporting cycle. alt Bentley Yates will provide access to all claims and account data, via employer reports as well as access through our web site.

8. What expenses qualify for distribution?

Any otherwise unreimbursed expenses that are defined under §213(d) of IRC (including eligible health insurance and long-term care insurance premiums), except that long-term care services and premiums for coverage under employer pre-tax plans are not reimbursable even though tax deductible under §213(d).

9. Can funds be used for non-medical expenses for those under age 65?

No. Funds may only be used for qualifying expenses.

10. Can funds be used for non-medical expenses for those over age 65?

No. Funds may only be used for qualifying expenses.

11. Is it a non-forfeitable account?

No.

12. What type of corresponding health plan is allowed?

Any type of health plan arrangement is allowed, but produces the best results and greatest savings when offered in combination with a higher-deductible health plan.

13. Can unused amounts carryover?

Yes; unused funds may be rolled over from year to year at the election of the employer; however, rollover is not required.

14. Is the account portable between employers?

No. HRAs may be designed to allow former employees to exhaust their HRA account, but it cannot be rolled over to a new employer.

15. Does interest accrue?

Regulations do not prevent interest accrual, but typically, interest does not accrue; it is up to the employer.

16. Is vesting allowed?

Regulations do not address vesting, but it is not typical.

17. Do non-discrimination rules apply?

Yes.

18. What is the tax treatment for employers?

Employer contributions are excludable for income tax and FICA purposes.

19. What is the tax treatment for employees?

Reimbursements are tax-free.

20. Is the account subject to COBRA continuation?

COBRA applies.

21. Is the annual amount of the contribution available on the first day of coverage?

The employer-designated HRA amount may be available on the first day of coverage, but can be prorated during the year, at the election of the employer.

22. Is third party substantiation of expenses required?

Yes. IRS regulations governing HRAs require that each claim be adjudicated before it can be reimbursed.

23. Can the account be integrated with other accounts?

An HRA can be coordinated with an FSA, but a traditional HRA cannot be integrated with an HSA.

24. Do employers need to offer employees the option to rollover funds from a FSA or HRA into a HSA?

No, you are not required to offer this as an option.

Because HRAs and FSAs are employer-sponsored plans, you have the choice whether or not to offer this option to employees.

25. Are medical expenses incurred prior to establishing a HRA eligible for reimbursement?

Medical expenses (including health insurance premiums) incurred prior to your enrollment in an HRA are not eligible for reimbursement. Only those expenses incurred after you establish a plan can be included. Your new HRA allows reimbursement expenses to begin on the first day of the month of your enrollment. For example, if you enroll in the HRA on June 15, 2007, then only your expenses established on or after June 15, 2007, are eligible for reimbursement.