Health Reimbursement Arrangements FAQs for Employers

Health reimbursement arrangements (HRAs) are tax-advantaged accounts that are funded with employer dollars to pay employee expenses not covered by their health plan. The employer outlines which expenses will be covered in the HRA summary plan document within the limitations outlined by the Internal Revenue Service Publication 969. For example, an HRA could pay all eligible medical expenses, including premiums for health and long-term care insurance, or the HRA could be limited to cover only dental or vision expenses. Although an HRA can have the option to carry forward unused funds to the future or for retirement, an employee cannot take their HRA funds to a new employer.

HRAs benefit much more than just your employees. Offering an HRA helps to lower your health plan expenses by providing your employees with a lower premium plan. This type of plan also offers a multitude of plan design options, allowing you to control the total cost of offering the account. Since HRAs are not pre-funded and are instead a promise-to-pay arrangement, you only pay when an employee files a claim. Plus, given that HRAs provide financial assistance to cover your employees’ eligible out-of-pocket healthcare expenses, you’ll experience better employee morale knowing their employer has them covered.

I’m so glad you asked! The Clarity HRA is built to be incredibly flexible. That means you can customize the dollar amount and payment schedule for each individual plan. We’ll work closely with you to determine the plan design that works best for your business and your employees (such as split copay HRAs.) Then throughout the plan year, we’ll provide online tools to monitor the effectiveness of the program. It’s truly a one-of-a-kind HRA experience!

Unfortunately, no. It was once a benefits trend in the past to offer employees an HRA they could use to purchase conventional insurance in the individual, non-group market with pre-tax dollars. This approach is no longer possible under section 2711. Although further guidance has not been issued, stand-alone HRAs will not be considered to be integrated coverage that complies with the annual dollar limit required by the ACA.

Employees aren’t the only ones who benefit from an HRA! Employers can deduct the amount of their HRA contributions. Keep in mind, since the account is funded on a “notional” basis like a line of credit, you can take the deduction only when the amounts are actually paid out to your employees.

Of course! HRA funds are contributed to employees on a pre-tax basis. That means disbursements are not included when calculating taxable income! For this reason, however, employees can not claim an income tax deduction for an expense that has been reimbursed under the HRA.

HRA funds are not portable. With the HRA, since you have pledged to pay the funds to your employees on an if-needed basis, any unused funds remain with you, the employer.

Contribution limits change from year to year based on IRS guidelines. Please visit www.claritybenefitsolutions.com to see this year’s most updated contribution details.

Not necessarily. An HRA is flexibly designed to make the HRA funds available to eligible employees on Day 1 or in installments throughout the year. No matter what you decide is best for your employees, you always hold the money until qualified expenses are incurred and then reimbursed.

Nope! HRAs are employer-sponsored benefits so only employers may contribute funds. If you would like to give your employees additional opportunities to save for medical expenses (tax-free) consider supplementing an HRA with a Flexible Spending Account (FSA).

Yes, according to Federal regulations, employer contributions must be comparable for all employees. That means that contributions must be in the same dollar amount for all employees with the same category of coverage. But, you can vary the level of contributions for full-time vs. part-time employees. There may be other variations around comparability, so it’s best to consult your broker, consultant or tax advisor for additional information.

Nope. According to IRS guidelines, anyone with two percent or more ownership in a schedule S corporation, LLC, LLP, PC, sole proprietorship, or partnership may not participate in their own HRA. However, C-corporation owners and their families ARE eligible to participate in HRA plans because they are considered to be W-2 common law employees.

You decide! You can either allow the HRA to pay before the employee meets any deductible, or it can be set up so that the employee has to meet a certain amount of out-of-pocket expense before the HRA begins to pay.

Your choice! An HRA can be for a calendar year, plan year, or any other defined period. HRAs are flexible in design so that employers can offer an HRA that best complements their overall employee benefit goals. Remember, the Clarity HRA is built to be flexible!

You sure can! You can prorate contributions for new hires and family status changes that occur anytime throughout the year.

Yes, they can. However, there can be no “double-dipping” or reimbursement from both plans for the same expense. This is explained in Revenue Ruling 2002-03 and 2002-80. The spouse of an employee may also be covered by your group’s HRA if they wish as part of family coverage.

Nope! The HRA can be paired with any health plan. They’re totally flexible and have no limitations.

Yes, it can! The customization of an HRA allows you to set up the HRA allocation for employee, employee+spouse, employee+child(ren), or family.

Yep! You choose exactly how your “fund rollover” will be structured. It’s then outlined in the Summary Plan Documents shared with employees.

Here’s how HRA fund rollover typically works: 

At the end of the plan year, participants will have a certain amount of time (“run-out period”) to submit claims for services incurred during the prior year. At the end of the run-out period or a different date set by you, all or a portion of the participant’s remaining funds may rollover to the next plan year or to a carryover account. If you choose, you may set the following rules: 

1. A percentage of remaining funds may roll over. For example, if you choose a 50% rollover and an account has a $512 balance on the fund rollover date, you can roll over $256.
2. A maximum amount may roll over, such as $250. Taking the example above, only $250 would rollover of the remaining $512.
3. A percentage up to a maximum, such as 50% up to  $250. Again, $250 would roll over, using the example above. If you had $300 remaining, then only $150 would roll over (50% of $300). 
4. All remaining funds may roll over to the next plan year. In this case, all $512 would roll over.