A health reimbursement arrangement (HRA) is a great way for employers to offer a health benefit to their employees without the limitations of traditional group health insurance.
While HRAs are an affordable and flexible option, there are a number of regulations that employers must follow to stay in compliance with the law. Employers that remain compliant when offering an HRA will avoid costly penalties and the risk of an IRS audit.
In this article, we’ll cover the most frequently asked questions businesses have about HRA compliance and some helpful ways you can keep your benefit in compliance with IRS regulations.
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- What should HRA plan documents include?
- Where do I get plan documents?
- What are the HRA employee privacy rules?
- What are the HRA substantiation requirements?
- Can an HRA satisfy the employer mandate?
What should HRA plan documents include?
The first step in offering an HRA is to establish a formal plan with the creation of legal plan documents. The purpose of these documents is to define the structure and parameters of the plan and to outline eligibility, allowances, and claim procedures.
A complete plan document should include the following:
- Named fiduciaries and plan administrators and their responsibilities.
- Eligibility requirements for the HRA.
- Effective dates of participation.
- Description of benefits provided and excluded.
- How the HRA is funded and how it makes payments.
- Claims procedures.
- HIPAA privacy officers and rules relating to the use of protected health information (PHI).
- Information on federal mandates and the procedure for amending the plan.
- The procedure for plan termination.
In addition to the plan documents, a summary plan description (SPD) should be created and made available to the participating employees. The SPD is a simplified version of the complex language included in the main plan documents.
The purpose of this document is to provide employees participating in the HRA an accurate and easy-to-understand description of the plan structure, rules, and procedures. The SPD should be comprehensive enough to inform participants of their benefits, rights, and obligations under the plan.
Where do I get plan documents?
It’s possible for an employer to create plan documents on their own, but it can be difficult to ensure each of the requirements is accurately represented. Alternatively, a business can work with a lawyer to draft the documents but this option can be expensive and usually doesn’t include compliance support.
As a third option, an employer can work with an HRA benefits advisor or administrator, like PeopleKeep, to provide the documents and assist the business in implementing the formal plan. This is likely the best option for most companies as it removes the burden of creating complex legal documents and provides the employer a supportive resource regarding compliance issues.
What are the HRA employee privacy rules?
Regardless of company size, HIPAA privacy rules regulate the conditions under which employee’s protected health information (PHI) can be shared with the company. The rules state employers offering an HRA must adopt certain written personal health information (PHI) privacy procedures.
The written privacy procedures must include:
- Safeguards for the administration of PHI
- Physical, electronic, and technical security of such information
- A process for employees to follow when filing and dealing with complaints
- Designated company HIPAA privacy officers who will directly handle employees’ PHI
Employers must take any measures necessary to see that PHI is not used for making employment or benefits decisions. These rules can be followed by an employer who is administering their own HRA, but like other aspects of compliance, they can be difficult to adhere to without the help of an HRA benefits advisor or software administrator.
What are the HRA substantiation requirements?
The IRS requires that employees being reimbursed through an HRA submit proper documentation verifying their reimbursement claims. This supporting documentation must be saved on file for seven years.
Documentation can be provided directly to the company’s designated privacy officers, or through a third party.
Examples of documentation that can be used to substantiate expenses are:
- An itemized receipt
- An explanation of benefits
- A detailed billing history
Failure to substantiate an expense or keep the required documentation on file could result in a negative result in the case of an IRS audit.
Can an HRA satisfy the employer mandate?
According to the Affordable Care Act (ACA)’s employer mandate, employers with 50 or more full-time equivalent employees (FTEs) must offer a health plan that meets minimum essential coverage (MEC) to at least 95% of FTEs and their dependents. The coverage must also meet the ACA’s minimum value and affordability requirements.
Previously, HRAs have most often been implemented by small businesses that are not subject to the employer mandate. But that has since changed with the creation of the individual coverage HRA (ICHRA).
Unlike other HRAs, the ICHRA, when implemented correctly, can satisfy the employer mandate requirements for large employers. Employees participating in the ICHRA must be enrolled in qualified individual health insurance coverage. This takes care of the MEC and minimum value requirements.
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Next, an employer offering an ICHRA to meet the employer mandate must ensure their contributions are affordable. An affordable ICHRA contribution ensures the cost of health insurance for an employee isn’t more than 9.61% of their monthly household income, using the lowest-cost silver plan on their local exchange as the standard.
As long as they are following other aspects of HRA compliance, an employer offering an ICHRA with affordable contributions for employees can be assured they are meeting the employer mandate and avoiding other penalties.
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Knowing the best ways to keep your HRA compliant will save you from many headaches and pitfalls. While it’s possible for a business to administer an HRA on its own, self-administration comes with inherent difficulties and risks.
Partnering with a software administration platform, like PeopleKeep, puts employers in a more risk-free position by eliminating the administrative and compliance difficulties. If you’re looking for an HRA administrative software for your organization, contact our personalized benefit advisors to help get you started!
This article was originally published on January 10, 2020. It was last updated January 5, 2022.