Health Reimbursement Arrangement (HRA) Administration
Health Reimbursement Arrangements (HRAs) are an effective and efficient way to provide employer-funded health benefits to employees of any type of business. HRAs allow individual employees to customize their benefits without adding administrative cost on your part. There is no requirement that the employer maintain any health insurance plan, and employees may optionally elect lower-cost individual insurance. The most attractive feature of HRAs is that they allow for payment of all qualified health-related expenses on a pre-tax basis.
All businesses, including one-person and part-time businesses, may operate an HRA plan. Self employed, partnerships, and shareholders with more than 2% ownership in an S-Corp cannot have an HRA, but their employees can participate.
Amounts provided by employers to employees are tax free and may be used to pay for group or individual health insurance or for any non-insured medical expense. These benefits are not wages and therefore are not subject to income taxes or wage taxes, FICA or worker's compensation. You may derive the benefits formula in any manner that is not considered discriminatory to the owner and highly compensated employees. Unused benefits may roll over from one year to the next and be banked for future expenses. Unlike an HSA, there is no requirement to set up separate accounts for employees. The primary benefit is that each employee may customize and optimize his or her own health benefits at no additional cost or effort required on your part.
There are two types of fully administered HRAs: Standard HRAs are relatively simple and can be processed automatically. Non-Standard HRAs are more complex and have to be processed manually. This additional effort requires slightly higher administration fees. The tables to the right illustrate examples of standard and non-standard plans.
Our partner Kushner & Company will work with you to set up whichever HRA you choose and provide all the necessary documentation, including Custom Plan Document and Summary Plan Description (SPD), employer-specific enrollment forms, employee communication materials (including an employee newsletter), explanations of the benefits and tax savings of the plan and online benefits access, direct deposit and available debit cards.