Health Reimbursement Arrangement (HRA) Flashcards
HRA
an employer funded plan that reimburses covered employees for specified medical expenses
are employee contributions allowed?
NO
When is it used? (3)
- substitute health insurance
- supplement to provide payments for medical expenses NOT covered under company’s insruance plan
- to pay for medical expenses in excess of a company’s plan limits
When is it indicated? (3)
- Closely-held corporations with family members as shareholders
- only employee is a high income professional or few other employees
- when employer wants to provide medical benefits beyond those already provided
HRA dollars must be expended ____ FSA monies can be used
before
Can HRA funds be rolled over from year to year?
yes
Can reimbursements cross years?
yes
Who does an HRA remain with?
Originating employer, even if employee leaves
The plan must be adopted by a corporation resolution that specifies: (3)
- the group of employees covered
- types of medical expenses that will be reimbursed
- any limits or conditions of payment by the company
What does any employer reimburse employee for?
claims covered under plan
Benefits are tax free to employees if: (3)
- medical expenses qualify under IRC 213
- they reimburse the employee for health insurance and long-term care insurance premiums
- the plan is nondiscriminatroy
Can the plan be fully funded or insured?
both
An employer may deduct 100% of: (3)
- cost of covered medical benefits paid to its employees under plan
- plan’s admin expenses
- cost of the employer’s stop loss insurance coverage
Annual deductions for pre-funding medical benefits are limited to the sum of…
total direct costs of the plan for the year, admin costs, and contribtions to an asset account up to 35% of the preceeding year’s direct costs
HRA benefits to employees are tax-free unless….
considered discriminatory
What happens if HRA is considered discriminatroy?
only HCE’s will recongnize pro-rata benefits as ordinary income
What does the employee do with any medical expenses that are NOT covered by an HRA?
use as itemized expense
What are the 2 nondiscrimination tests?
plan coverage and benefits
Plan coverage must….
- benefit 70% or more of all employees
- if at least 70% eligible, must benefit 80% or more
OR
-must benefit a classification of employees, established by the employer, that does not dicsriminate in favor of HCEs
Benefit test
all benefits provided for HCEs under plan must be provided to all plan participants
Who can be excluded from the coverage tests? (5)
- employees who have not complete at least 3 years of service
- employees under age 25
- part-time or seasonal employees
- employees in a collective bargaining unit
- nonresident alien employees who received no US income
Is an HRA subject to ERISA?
yes
