In the past, Health Reimbursement Arrangements (HRAs) were a popular vehicle used by small businesses to reimburse employees tax-free for individual health insurance premiums and out-of-pocket medical expenses. However, health reform brought sweeping changes to the health insurance industry, including how employers can use HRAs.
Every day, small business owners ask us how they can use HRAs in 2015, and what their options are for compliant healthcare reimbursement. Here's a simple breakdown of how HRAs can be used in 2015.
Integrated HRAs are generally compliant in 2015.
What is an Integrated HRA? An Integrated HRA, often called a deductible-only HRA, a linked HRA, or a GroupHRA, is an HRA linked with a high deductible group health insurance plan. The Integrated HRA is a supplement to help with deductible costs, and is only offered to those at the company who enroll in the group health insurance plan.
What you need to know for 2015: If you have an Integrated HRA, we recommend working with your broker to ensure the group health insurance plan, combined with the Integrated HRA, meets all health reform requirements. For example, see: Integrated HRAs - Minimum Value and Affordability Calculations.
Retiree HRAs are generally compliant in 2015.
What is a retiree HRA? A retiree HRA is designed to reimburse employees only after retirement.
What you need to know for 2015: According to the current regulations, a "retiree-only HRA is generally not subject to the rules in PHS Act Section 2711 relating to annual limits." If you offer a retiree HRA, work with your HRA administrator to ensure compliance.
Stand-alone HRAs (with two or more participants starting on or after 1/1/14) are generally not compliant in 2015.
What is a stand-alone HRA? A stand-alone HRA is not linked to a group health insurance plan. The HRA is generally designed to reimburse individual health insurance premiums and out-of-pocket medical expenses.
What you need to know for 2015: If you've offered a stand-alone HRA, and the plan has two or more participants, you will need to adopt a new reimbursement plan that complies with the annual limit and preventive care regulations (PHS 2711 and PHS 2713, respectively). This likely means making changes to what the plan will reimburse, and how it is structured.
Read on for more information about your options with reimbursing individual health insurance.
One-Person Stand-Alone HRAs
One-person stand-alone HRAs are generally compliant in 2015.
What is a one-person stand-alone HRA? A one-person stand-alone HRA is just that - a stand-alone HRA with one participant. One-person stand-alone HRAs are popular with C-Corp owners, one-person non-profits and churches, and entrepreneurs.
What you need to know for 2015: One-person stand-alone HRAs are exempt from PHS 2711 annual limit regulations, and are still compliant. In other words, if your stand-alone HRA only has one participant, you can continue to offer the stand-alone HRA in 2015.
How You CAN Reimburse Individual Health Insurance Premiums
If you used a stand-alone HRA in the past, or are looking to reimburse individual health insurance premiums, there are essentially two options you can adopt.
The first option is a taxable health insurance stipend. With a health insurance stipend, employees receive a fixed, taxable stipend to purchase individual health insurance. Employees receive the stipend whether or not they actually purchase health insurance.
The second option is a reimbursement plan. With a reimbursement plan, all similarly situated employees are granted a fixed allowance amount to purchase individual health insurance, but only receive money if they actually purchase health insurance. Employees purchase their own individual health insurance policy and submit proof to their employer (or the employer's third-party provider). Employees receive monthly reimbursements up to their allowance amount that are typically added to their paycheck tax-free.
Tip: A reimbursement plan (option 2) is a group health plan, and is subject to compliance with IRS, ERISA, HIPAA, ACA Market Reforms, and other applicable rules. To make sure your arrangement is compliant, and to make compliance easy, use a Reimbursement Software Provider.
Questions about HRAs in 2015? Leave a comment below.