Section 105 Health Reimbursement Arrangement (HRA)
Section 105 HRA Plans
Health Reimbursement Arrangements or HRAs have grown in popularity as a viable tool for managing the skyrocketing costs of health insurance. Average usage rates show that many employers are paying premiums on employees who are not utilizing any coverage.
By moving to a high deductible health plan, the premiums paid by the employee and /or employer are reduced resulting in a real savings. Then, the employer utilizing an HRA bridges the gap between the higher deductible and when the insurance coverage begins. Employers can then use the savings from lower premiums to fund the HRA contributions. In addition, all contributions to the HRA are tax-free to the participant and tax deductible for the employer.
HRAs offer optimal flexibility in how they are designed and what expenses may be paid from those funds. For example, an employer may choose to cover emergency room expenses only, while another employer may provide dollar for dollar coverage of the deductible plus prescription drug coverage. The primary requirements of any HRA are following:
All contributions must be funded by the employer; no contributions may be made by the employee
Benefits paid in the plan should be substantiated and may only be for qualified expenses not covered by health insurance.
Possible HRA options: Qualified small employer HRA, Integrated HRA, Individual Coverage HRA
A Health Reimbursement arrangement may be combined with a Flexible Spending Account to allow employees to further bridge the gap between the HRA and the health insurance coverage. A careful analysis of your company’s insurance costs, usage and goals will assist you in determining what plan design option is most beneficial for you and your employees.
