What is an HRA?
A Health Reimbursement Arrangement is permissible under IRS Code §105 and §106 which allow tax-free reimbursement of qualified medical expenses. The types of expenses that can be reimbursed are found in IRS Code Section 213 and include many medical, dental and vision expenses. An HRA needs to be integrated with a group health plan in order to avoid significant penalties under the Affordable Care Act. HRAs are funded 100% by employers – no employee contributions are permitted.
Why offer an HRA?
Employers offer HRAs to decrease the cost of providing health insurance. It works like this: The difference in cost between a higher level of group health insurance (such as an HMO) and the lower cost of a plan with higher out of pocket is earmarked for the HRA. By doing so, the employer is basically "self-funding" the claims that are attributed to the out-of-pocket requirement (such the deductible or coinsurance) of the less expensive plan. Click here for an example.
What HRA plan designs are available?
Employers have several HRA design options, some of which may include the debit card. We also have direct claim feeds established with most insurers.
GDI’s most common HRA designs are summarized below. Please contact us if you do not see your anticipated design as our reputation for customizing HRAs is unparalleled.
Option A: Employer offers a qualified high deductible health plan (qHDHP) with or without Health Savings Accounts (HSA). The health plan has a calendar year deductible but its contract renewal is off-calendar year. The HRA reimburses participants for a portion of the deductible. (Note: this plan design also works when the plan’s contract renewal period and deductible period are identical.)
Option B: Employer offers a health plan that is not HSA compatible. The health plan’s deductible period matches the renewal date and the HRA reimburses the health plan’s out-of-pocket expenses as well as all IRS Code §213(d) expenses. (Note: this plan design also works when the plan’s contract renewal period and deductible are off-cycle.)
Option C: Employer offers a health plan that is not HSA compatible. The health plan has minimal services that apply to the deductible (e.g., in-patient services only) and all other medical services have a per event co-payment. The HRA reimburses specific co-payments only and/or limits reimbursement to qualified vision and/or dental services.
An HRA may also include a “carryover” provision, choose to limit the dollar amount of reimbursement on a monthly or quarterly basis to protect cash flow and/or allow former employees to “spend down” their balance.
How are HRA claims substantiated?
IRS regulations require third party substantiation of all HRA claims. Employers may choose to establish a claim feed with their health insurance carrier so that eligible claims are sent to GDI electronically and are reimbursed to either the participant or to the medical provider. Alternatively, the plan may be designed to require participants to complete a claim form, attach an Explanation of Benefit and submit the request to GDI.
Does COBRA apply to an HRA?
Yes. HRAs are considered group health plans under IRS regulations and as such, COBRA regulations apply. GDI offers COBRA services, offering its HRA clients seamless COBRA compliance.
Is it possible to offer a Medical FSA or HSA in conjunction with an HRA?
Absolutely! Establishing a Medical FSA allows employees to set aside money on a pre-tax basis to reimburse themselves for qualified medical expenses not paid for by the HRA or group health plan. It is also possible to “stack” an HRA with a qHDHP/HSA combination which would allow the HRA to reimburse eligible expenses after the minimum statutory deductible has been met by a participant.