Rick Rosenquist 2013-04-04 07:16:46
Defined Contribution and HRA’s Rick Rosenquist is an employee benefit consultant. He has been instrumental in developing VIP programs for the Association of Legal Administrators through broker/consultant partners. He can be reached at 480-659-1533 office, 602-320-9093 cell or via email at email@example.com. Rather than paying the costs to provide a specific group health plan benefit (a “defined benefit”), firms can fix their costs on a monthly basis by establishing a defined contribution health plan. Defined contribution health plans are an affordable alternative to employer-sponsored group health insurance plans. Defined contribution health plans by themselves are not health insurance plans. Recruiting and retaining key employees is important to every firm and a firms’s health benefit program is a key part of the compensation they offer to their employees. Due to the rising costs of traditional employer-sponsored health insurance, defined contribution health plans are gaining popularity in the U.S. The general concept of a defined contribution health plan is that a company gives each employee a fixed dollar amount (a “defined contribution”) that the employees choose how to spend. Typically, employees are allowed to use their defined contribution to reimburse themselves for individual health insurance costs or other medical expenses such as doctor visits and prescription drugs. A health reimbursement arrangement or HRA, is an IRS approved, employer-funded, tax advantaged employer health benefit plan that reimburses employees for out of pocket medical expenses . A health reimbursement arrangement is not health insurance. A health reimbursement arrangement allows a firm to make contributions to an employee’s account and provide reimbursement for eligible expenses. A health reimbursement arrangement is an excellent way to supplement health insurance benefits and allow employees to pay for a wide range of medical expenses not covered by insurance. It is often referred to (incorrectly) as a health reimbursement account. Reporting features make real-time monitoring of health reimbursement arrangement liabilities, reimbursements and utilization easy. Employers can change plan benefits at any time or cancel the entire plan at any time. Further, health reimbursement arrangements allow firms to establish plan-year maximum reimbursements for any given category of expense (e.g., dental) and to establish a maximum balance that any participant class may hold at a time. Type of HRA’s: • Stand-Alone HRA: A stand-alone HRA is not linked to a major medical plan, rather the HRA is the health benefit. Employers can reimburse for individual health insurance premiums, as well as other eligible outof- pocket medical expenses. • Integrated HRA: The most commonly-known type of HRA is one that is integrated with a high deductible major medical plan. The HRA is offered only to those who take the major medical coverage. This article focuses on stand-alone HRAs. HRA Allowance & Frequency What amounts would you like to allocate for each employee, and at what frequency will they be available (monthly or annually)? For example, an employee could have a $100 monthly HRA allowance, made available at the beginning of each month. Or, an annual allowance of $1,200 made available at the beginning of the plan year. There is no minimum or maximum HRA contribution amounts, and all HRA funds are notional (paid only after the medical expense is substantiated). HRA Classes & Eligibility Will you have one benefit level for all employees, or give different HRA allowances by class of employee? With HRA class design, you can allocate different HRA allowances based on bona-fide job criteria such as job description, length of stay with the company, geographic location, part-time or full-time status, etc. ERISA and HIPAA allow this, as long as all “similarly situated” employees are treated equally. Annual Rollover of Unused Funds What will happen to employees’ unused HRA funds at the end of the plan year? You have full control over this. An HRA can be designed with full rollover of unused funds, a capped rollover of unused funds (a maximum amount to rollover), or no rollover of unused funds (“use it or lose it”). HRA Eligible Medical Expenses What type of expenses do you want the HRA to reimburse? The IRS sets the definition for medical expenses that can be reimbursed through an HRA (see Section 213(d) of the Internal Revenue Code). From this list you can limit expense categories not to reimburse. Categories may include health insurance premiums, doctor’s visits, hospital care, pharmacy, mental health, physical therapy, etc. HRA “EOB-Only” Requirement Do you only want to reimburse expenses that were covered by a major medical plan? If so, you can require that all expenses are submitted with an Explanation of Benefits (“EOB”) which shows that the medical expense was covered under insurance. This is most common with an integrated HRA (group plan), but can be applied to any HRA. HRA Cost-Sharing Options Would you like employees to share in the cost of their medical expenses? If so, you can design your HRA plan with an HRA co-insurance and/or deductible. For example, with an HRA co-insurance you could reimburse 80% of all eligible medical expenses. With an HRA deductible, employees could be required to pay out-of-pocket a certain amount per plan year before HRA funds are available to them. Expense-Specific Maximums Is there a certain type of expense you want to limit or cap? For example, within an employees’ annual HRA allowance, you can design their HRA to limit the amount reimbursed for certain categories of health care expenses. For example, a business could offer a $2,000 HRA annual allowance, with an annual limit of $500 for dental expenses. As always, communication is critical, and in this case, compliance is also critical. Make sure you are dealing with someone who is familiar with HRA’s and the PPACA legislation.
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