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Health Reimbursement Arrangements (HRA)
Old 10-23-2007, 08:43 PM   #1
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Health Reimbursement Arrangements (HRA)

I see plenty of HSA questions here, and I think I've seen a couple of flexible-spending account questions too, but I don't think anyone has ever posted a question about HRAs (under IRC Sec 105 and 106).

Is there anyone here that uses an HRA?

Some of the pros of using an HRA include...
  • No dollar limit employer can contribute to an HRA for an employee.
  • Qualified medical expenses includes ANY employee-paid health insurance premiums (no need for High-Deductible Health Plan) among other medical expenses per IRS Section 213(d).
  • Deductible by employer under IRC Sec 162.
  • Unused funds are rolled over at end of year.
  • May be self-administered by employer (so no third-party trustee or custodian is necessary).
  • Medical expense reimbursements may be made even after employee leaves employer (as long as funds exist in the account).
  • No need to prepare Form 5500 if there are fewer than 100 participants.
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Old 10-23-2007, 09:26 PM   #2
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Didn't TboneAl use one before he retired?
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Old 10-23-2007, 09:36 PM   #3
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Didn't TboneAl use one before he retired?
No, he uses an HSA, not an HRA.
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Old 10-23-2007, 09:48 PM   #4
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Originally Posted by retire@40 View Post
Is there anyone here that uses an HRA?
I was excited--for a minute. I'm self-employed, and apparently HRAs aren't allowed for self-employed folks (though I could provide one for my wife, if she were my employee). This would have been a great way to deduct insurance expenses, medical expenses, etc (just like big companies do). But, because I'm not an employer, I don't qualify.

Hmmm-the IRS sure thinks I'm an employer when they charge me both sides of the SS taxes.

I'm ready for a National Retail Sales Tax to replace our inconsistent, idiotic nightmare of a tax code!
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Old 10-23-2007, 10:08 PM   #5
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Originally Posted by retire@40 View Post
No, he uses an HSA, not an HRA.
I know he uses an HSA now, but I though he had an HRA when he was working. But I could be wrong.


SamClem, I think you can participate if you have a corporation.
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Old 10-23-2007, 10:20 PM   #6
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SamClem, I think you can participate if you have a corporation.
Martha,
I think you are right, I could do this if I set up an S-Corp or a C-Corp. I probably won't do that--as far as I can tell, I don't need anything else a corp would provide (liability protection, other tax benefits, etc.) I'm just a small-fry.
Thanks for the tip.
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Old 10-24-2007, 10:11 AM   #7
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My former MegaCorp announced last year that retirees over the age of 65 will now have a HRA instead of company medical coverage. As I am 9 years from 65, I expect the rules will change several times before I'm eligible -- but I did attend an informational meeting to try to learn more about this change.

Essentially, the company said 65-yr-old retirees would sign up for Medicare (as before), but in the past they didn't have to sign up for a Part D plan as they were covered by the co. medical coverage for prescriptions, etc. Now, MegaCorp would set up HRAs for retirees at age 65 and their eligible spouses, funding them with $1750 per person per year to be used to help the retiree offset the Part D expenses and other costs. How they came up with $1750 wasn't explained and the meeting gave no clue on how that number would change year over year. Amounts not spent in one year would roll over to the following year.

To say that the meeting attendees were confused is a huge understatement. After the canned PowerPoint presentation, they opened the floor to questions. Boy, you should have heard some of those older (like age 80+) retirees rip a new one into the presenters!

Like I said, as I am nearly a decade away from this "solution", I expect many changes before I'm eligible.
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Old 10-24-2007, 10:29 AM   #8
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R@40, do you use one for your business?
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Old 10-24-2007, 10:50 AM   #9
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Rumor has it that my employer is going to HRA's next year and will use them for a year or two to get folks comfortable with the idea of reimbursement for expenses that are applied towards the deductible on their health insurance. The company's stated goal is to eventually move to a high deductible plan with a real HSA, and probably contribute some funds to the HSA on behalf of each employee.

I'm at a small company and they are doing everything they can to manage employer-provided health insurance costs. We have seen the copays increase and the deductibles increase along with premium increases most years. The company is also very resistant to change and new ideas (like HDHP's and HSA's), even though I think it would be the best option for the great majority of folks here.

Another big stated reason for my company going to HRA's next year is to increase the deductible significantly, and basically fund HRA's to cover the increase in the deductible. In other words, my employer is planning on self-insuring for claims above $1000 and below $5000 or something like that. Apparently it will save the company significant money doing this.
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Old 10-24-2007, 10:58 AM   #10
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Rumor has it that my employer is going to HRA's next year and will use them for a year or two to get folks comfortable with the idea of reimbursement for expenses that are applied towards the deductible on their health insurance. The company's stated goal is to eventually move to a high deductible plan with a real HSA, and probably contribute some funds to the HSA on behalf of each employee.
This sounds familiar. I've had an HCA-type setup for three years; the family deductible was $2000 with a $3000 out of pocket annual maximum. The company added $2000 a year up to a maximum of $3000 accumulating. This next year this is being replaced by an HSA. I don't know the specifics yet; we should get it in the mail next week. But I'm curious how many differences there are in terms of deductible and premium. I know they aren't going to be giving $2000 a year, since this is now our money if we leave the company and it's not capped at $3000 any more.

The one thing I don't like about HSAs compared to our current setup is that prescriptions are part of the total deductible instead of capped at $10 co-pays for generics and $25 for "preferred" name brand medications, and my wife takes three medications which (combined) cost about $250 per month. That means we could basically eat as much as $3000 a year of the deductible just on her meds, though we may be able in some cases to switch to nearly equivalent generics. Depending on the details, I may have to pay the higher premium and go with the standard PPO option, but I like the lower-premium HSA in that it will be easier to pay for COBRA coverage on it.

Guess we'll see.
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Old 10-24-2007, 11:15 AM   #11
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Originally Posted by retire@40 View Post
I see plenty of HSA questions here, and I think I've seen a couple of flexible-spending account questions too, but I don't think anyone has ever posted a question about HRAs (under IRC Sec 105 and 106).

Is there anyone here that uses an HRA?

Some of the pros of using an HRA include...
  • No dollar limit employer can contribute to an HRA for an employee.
  • Qualified medical expenses includes ANY employee-paid health insurance premiums (no need for High-Deductible Health Plan) among other medical expenses per IRS Section 213(d).
  • Deductible by employer under IRC Sec 162.
  • Unused funds are rolled over at end of year.
  • May be self-administered by employer (so no third-party trustee or custodian is necessary).
  • Medical expense reimbursements may be made even after employee leaves employer (as long as funds exist in the account).
  • No need to prepare Form 5500 if there are fewer than 100 participants.
I am using a similar arrangement staring Jan 1 2008 with health care.

company puts $ in HSA... last year they called this account an HRA, this year they called it an HSA. I can add additional monies to same account as well.
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Old 10-24-2007, 11:34 AM   #12
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Originally Posted by Martha View Post
R@40, do you use one for your business?
I am considering setting one up.

Everything I have read is positive about HRAs which makes me wonder if I am missing anything. If this is such a great plan, why aren't more people talking about them or using them?

Some of the questions I have about HRAs are...
  • Do I need to have my only employee (my wife) submit her family medical expenses through a third party, or can she just give me her medical receipts and I write her a direct reimbursement check from my business account?
  • Do I need to maintain a separate HRA account, or can just use a pay-as-you go approach and pay her from my business checking account? As her employer, the amount I could contribute to her HRA is unlimited, so I don't see any need to track my contributions since there is no minimum or maximum.
  • If I set up an HRA in a separate account for her, does it need to be titled as an HRA account, or can it just be a regular money market account that is used strictly for medical reimbursement?
  • If I get a Schedule C deduction for all money contributed to the HRA, could I potentially contribute the full amount of my net income to reduce it to zero, thereby avoiding all income tax and self-employment tax on my income?
  • Do I need a written contract, or can I just have an oral agreement to reimburse her for all her qualified medical expenses?
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Old 10-24-2007, 11:41 AM   #13
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Didn't TboneAl use one before he retired?
Yes, I did. Very simple and effective. I didn't use any special accounts or anything like that. Simply had a written contract, based on a boilerplate I got somewhere. I'll post it if I can find it.
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Old 10-24-2007, 11:41 AM   #14
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I had a couple of clients that had these plans. IIRC they had to have a third party administer the payments due to a recent revenue ruling out there requiring this.

EDIT: I am thinking I might be recalling this incorrectly. They might have converted to a third party administrator because of HIPAA issues. Anyway, something to check on.
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Old 10-24-2007, 11:42 AM   #15
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Originally Posted by jIMOh View Post
I am using a similar arrangement staring Jan 1 2008 with health care.

company puts $ in HSA... last year they called this account an HRA, this year they called it an HSA. I can add additional monies to same account as well.
HSAs and HRAs are two very different animals.

One of the biggest differences is that with an HSA you need a high deductible health plan, so many people do not qualify for an HSA. And the contribution amount to an HSA is capped.

With an HRA you can have any health insurance plan you want and there is no limit to the amount contributed to the HRA.
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Old 10-24-2007, 11:43 AM   #16
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Here it is, from 2001. Note that you can modify it within limits to be most advantageous to your situation:

Medical Reimbursement Plan, Responsive Software


Section 1 Purpose of Plan

1.01 The purpose of this Medical Reimbursement Plan (hereinafter the "Plan") is to provide for the payment for, or provision of, uninsured medical and dental expenses for participating Employees, spouses of participating Employees, and Dependents of participating Employees.
1.02 It is intended that this Plan qualify as an accident and health insurance plan as defined by Code Sec. 105 of the Internal Revenue Code of 1986, as amended ("Code"), and that benefits paid to Employees hereunder be excludable from their gross incomes by reason of Code Sec. 105(b).
Section 2 Definitions

Unless a different meaning is clearly indicated by the context, whenever used in this document, these words shall have the following meaning:
2.01 Benefits. Any amounts paid to a Participant in the Plan as reimbursement for Eligible Medical and Dental Expenses (as defined in Section 2.06) incurred by the Participant during the Plan Year or by the Participant's spouse or the Participant's Dependents (as defined in Code Sec. 152).
2.02 Code. The Internal Revenue Code of 1986, as amended.
2.03 Coverage Period. The Plan Year during which Benefits under this Plan are available.
2.04 Dependent. Any individual who is a Dependent (as defined in Code Sec. 152) of a Participant.
2.05 Effective Date. The First day of January, 2001.
2.06 Eligible Medical and Dental Expenses. Expenses incurred by the Employee, the Employee's Spouse, or the Employee's Dependents, after the Effective Date of the Employee's participation in this Plan and during the Plan Year otherwise allowable as deductions under Code Sec. 213 (without regard to the limitations in Code Sec. 213(a)). For purposes of this Plan, an expense is incurred when the Employee, Spouse or Dependent receives the medical care or services giving rise to the claimed expense.
2.07 Employee. Any person who is an Employee of the Employer for federal withholding tax purposes.
2.08 Employer. The company creating this Plan, or an affiliate or successor thereof that adopts this Plan.
2.09 Participant. Any Employee who has met the eligibility requirements set forth in Section 3.
2.10 Plan Administrator. The person appointed by Employer who has authority and responsibility to manage the Plan.
2.11 Plan Year. The Plan's annual accounting period, which begins on January 1 and ends on December 31 for the first Plan Year and thereafter as long as the Plan remains in effect.
2.12 Spouse. An individual who is legally married to a Participant other than an individual separated from a Participant under a legal separation agreement or decree.
Section 3 Conditions for Eligibility

3.01 Any full-time Employee is eligible to participate in the Plan as of the Effective Date provided that the Employee is not a member of a collective bargaining unit of Employees covered by a collective bargaining agreement with Employer as part of which accident and health benefits have been the subject of good-faith negotiations.
3.02 For this purpose, a full-time Employee is an individual who normally works at least one hour per week.
Section 4 Amount of Benefits

4.01 The maximum amount per Plan Year that a Participant may receive as reimbursement under this Plan is $10,000.
4.02 For purposes of this Section 4, reimbursements of expenses for a Participant's Spouse or Dependent are treated as having been received by the Participant.
4.03 Employer shall pay all costs of providing the Benefits due under this Plan. Employer reserves the right to enter into any arrangement, contractual or otherwise, that Employer deems helpful to the proper and efficient operation of the Plan including, but not by way of limitation, the right to enter contracts with insurance companies and third-party administrators.
Section 5 Payment of Benefits; Claims; and Claims Review Procedure

5.01 Subject to the provisions of this Section, each Participant shall be entitled to the Benefits set out in this Plan for Eligible Medical and Dental Expenses incurred after the Effective Date of his or her participation in the Plan.
5.02 All claims for Benefits under the Plan must be made on forms maintained by Employer. Claims may be submitted at any time after the expense is incurred but in no event later than 120 days after the close of the Plan Year in which the medical treatment or service giving rise to the claim was received.
5.03 Once payment of a claim has been approved by the Plan Administrator, Employer shall pay the Participant's Benefit due under the Plan as soon as is reasonably feasible, but in no event later than 120 days after the date payment of the claim was approved.
5.04 If any claim for Benefits under this Plan is denied, in whole or in part, then Employer shall promptly provide the Participant written notice stating the reason(s) for the denial, citing the Plan provisions upon which the denial is based, describing what information Participant needs to supply in order to perfect the claim (if applicable), and notifying Participant of the review procedure herein.
5.05 A Participant whose claim for reimbursement has been denied may request a review of the denial. The request for review must be in writing and must be received by Employer no later than 120 days from date the claim was denied.
Employer shall permit any Participant who timely files a request for review of a claim denial hereunder to inspect all pertinent documents relating to the Plan in general and to the denial in particular (other than those documents the disclosure of which is prohibited by law). After conducting the review (which may, at the reviewer's discretion, include interviews with Participant and such other individuals as Employer or Participant may suggest), the reviewer shall issue a written decision that includes the reasons therefore and the Plan provisions upon which the decision is based.
5.06 Coverage under this Plan shall cease as of the first day of the month after the month in which a Participant is no longer employed by Employer. Such Participant shall, however, have the right to submit a reimbursement claim for any Eligible Medical and Dental Expense arising during the Coverage Period at any time before the expiration of 120 days after the close of the Plan Year in which the expense arose, and to receive the Benefits provided under the Plan.
Section 6 Plan Administration

6.01 Employer shall have the exclusive authority and responsibility to direct administration of the Plan. Subject to Section 6.02, the Chief Accounting Officer shall be the Plan Administrator
6.02 Notwithstanding Section 6.01, Employer reserves the right, at its option, to delegate all or any part of the authority and responsibility for plan administration to any party or parties, regardless of whether said party or parties are employed by Employer.
6.03 The Plan Administrator shall have the authority to:
  • make such regulations and to prescribe the use of such forms as may be necessary for the efficient operation of the Plan;
  • require any person to provide such information as may, in the Plan Administrator's discretion, be necessary for the Plan's proper administration and to condition the payment of Benefits hereunder upon receipt of said information;
  • to decide questions regarding eligibility and the payment or nonpayment of Benefits; and
  • exercise such other powers as may be reasonably necessary to administer the Plan properly and efficientl y.
6.04 Except to the extent permitted by law, the Plan Administrator shall not be personally liable for any act or failure to act in the performance of his or her duties as such, except for his or her own willful misconduct or willful breach of the terms of this Plan.
6.05 Unless the Board of Directors otherwise directs, the Plan Administrator shall serve without compensation. Employer shall pay for all reasonable expenses incurred by the Plan Administrator in the performance of his or her duties.
Section 7 Amendment or Termination of Plan

7.01 Although Employer intends this Plan to continue indefinitely, Employer reserves the right to amend or terminate the Plan at any time. This right includes the right to make such retroactive amendments as may be necessary to comply with Code Sec. 105 or any successor or similar provision or to comply with the rules and regulations of any other governing authority.
Section 8 No Employment Rights

8.01 Neither the existence of this Plan, nor any action with respect to it, shall confer upon any person the right to continued employment with Employer.
8.02 The existence of this Plan, and all actions taken with respect to it, confer no additional rights to any type of financial benefit from Employer other than that described in Section 4.01.
Section 9 Governing Law
9.01 Unless otherwise governed or pre-empted by the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), this Plan shall be governed by the laws ofthe situs of Employer's principal business office.
Section 10 Headings and Terms

10.01 All headings in this Plan are for reference only and shall not be construed as defining or limited the matter contained thereunder.
10.02 All terms contained in this Plan shall be deemed to include the masculine and feminine genders and all references to the singular shall be interpreted to include the plural and vice versa, as proper construction may require.
Section 11 Tax Effects

11.01 Neither the Employer nor the Plan Administrator makes any representation or warranty as to whether payments received under this Plan shall be includible in income for federal or state income tax purposes.
11.02 As between Employer and Employee, an Employee receiving reimbursement hereunder shall bear full responsibility for payment of federal and state income tax (if any) that Employee's receipt of such reimbursement may generate.
Section 12 Severability and Integration

12.01 If the event that any part of this Plan shall be declared invalid by a court of competent jurisdiction, the remaining provisions hereof shall be give full force and effect to the fullest extent possible.
12.02 This document contains the entire Plan. In the event that the provisions hereof shall be in conflict with any other document of Employer describing the parties rights and duties arising hereunder, this Plan shall control.
On behalf of Employer, the following Corporate Officers have set forth their signatures below.

President _____________________________________

Date _________________________________________

Chief Accounting Officer __________________________________

Date ______________________________________
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Old 10-24-2007, 11:45 AM   #17
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I used that plan starting in 2001.

Prior to 2001, I had a similar plan with a third-party to set things up, but later found that (or rules had changed such that) I could do it myself.

Plan administration consisted of signing that document, putting it in the filing cabinet, and deducting all medical, dental, and optical expenses and all health care premiums.
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Old 10-25-2007, 08:45 AM   #18
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Here it is, from 2001. Note that you can modify it within limits to be most advantageous to your situation:

Medical Reimbursement Plan

Section 3 Conditions for Eligibility

3.01 Any full-time Employee is eligible to participate in the Plan...

3.02 For this purpose, a full-time Employee is an individual who normally works at least one hour per week.
I love your definition of "full-time employee."

It would almost be possible to be working full-time for you and be retired at the same time.
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Old 10-25-2007, 08:52 AM   #19
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I love your definition of "full-time employee."

It would almost be possible to be working full-time for you and be retired at the same time.
Too bad employers don't use that definition and provide health insurance for all full-time employees. Talk about a job that everyone is trying to get. You could probably get people to pay you for the privilege of working there.
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Old 10-29-2007, 12:40 AM   #20
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I found answers to my own questions.

Quote:
Do I need to have my only employee (my wife) submit her family medical expenses through a third party, or can she just give me her medical receipts and I write her a direct reimbursement check from my business account?
A third party administrator is not required. The employer may be the administrator.

Quote:
Do I need to maintain a separate HRA account, or can just use a pay-as-you go approach and pay her from my business checking account? As her employer, the amount I could contribute to her HRA is unlimited, so I don't see any need to track my contributions since there is no minimum or maximum.
A separate account is not required, but may be used. If a separate account is used, it will fall under ERISA rules.

Quote:
If I set up an HRA in a separate account for her, does it need to be titled as an HRA account, or can it just be a regular money market account that is used strictly for medical reimbursement?
A regular non-interest bearing account will do (maintained under the employer's name). A debit card may be tied to this account as an option.

Quote:
If I get a Schedule C deduction for all money contributed to the HRA, could I potentially contribute the full amount of my net income to reduce it to zero, thereby avoiding all income tax and self-employment tax on my income?
Business deductions are based on reimbursements to the employee.

Quote:
Do I need a written contract, or can I just have an oral agreement to reimburse her for all her qualified medical expenses?
The HRA plan must be written.
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