1. What is an HRA?
A Health Reimbursement Arrangement (HRA) is a federally approved program that allows an employer to create a plan that reimburses all or a portion of their employees’ medical expenses. Expenses paid by the employer are tax deductible and are not taxable income to the employee.
2. How do HRAs work?
The employer defines the employee’s medical expenses which are eligible to be reimbursed under the plan. The employer defines how much of the fringe benefit rate per hour will be available for each employee and their dependents. The employer makes all eligible payments. There can be no employee funding of an HRA.
3. How does the employer fund the HRA?
To be “credit-able”, the employer must make contributions on a regular basis pursuant to a fund, plan or program, not less often than quarterly. Furthermore, all contributions must be irrevocable and allocated to the employee’s account.
4. What type of "insured" or "self-funded" medical plan must the employer provide?
There are no rules defining the employer’s medical plan. Any benefit structure is allowed with an HRA. Generally the employer should choose a high deductible plan. The high deductible plan reduces the employer/employee cost, allowing the employer to save premium dollars.
5. Is the Contractors HRA an approved plan?
The Contractors HRA trust has a favorable opinion letter from the IRS as a welfare benefit plan under Section 501(c)(9) of the tax code.
6. What legislation covers the HRA?
HRAs were originally outlined in IRS codes 105 and 106 in 1954. Subsequently, Revenue ruling 2002-41 and IRS Notice 2002-45 further outlined HRAs.
7. Are HRA benefits deemed “bona fide” by the DOL under applicable prevailing wage laws?
An HRA is a “funded” medical reimbursement plan carried out under a legally enforceable plan. The specific language can be found at 29 Code of Federal Regulation (CFR), Part 5.
8. What happens to the excess funds at the end of a plan year?
Any employee having unused funds in their HRAs will have those funds automatically rolled over into the subsequent plan year.
9. Are there annual limits on contributions?
Generally, no. However, contributions made to the HRA for government work may not be used to fund periods for non-government work.
10. Can employees "cash out" their unused HRA funds?
No, employees cannot cash out unused funds as this will create a taxable event and will violate the regulations established by HRAs. Monies can only be used for eligible medical expenses.
11. How are the HRA distributions taxed?
They are not taxed, since they can only be used for medical expenses.
12. What is covered?
Medical expenses in Section 213 of the tax code, including certain premium payments for other insurances (see partial list attached).
13. Can the funds be used to pay health insurance premiums?
Yes, they can be used to pay for current coverage, COBRA coverage, retiree coverage or long term care.
14. How do I get money out to pay for medical expenses?
Either by debit card while employed or by submitting a claim form to the HRA Administrator during the COBRA continuation period.
15. Are there COBRA continuation rights?
An HRA is a group health plan and, therefore, must follow the rules under COBRA. All employees that are eligible for COBRA will have automatically deemed to have elected COBRA through the eligible COBRA continuation period and have access to unused funds.
16. What happens to the unused HRA funds in the event an employee is deceased?
The unused funds will be available for utilization by the deceased employee’s spouse or dependent children. If these dependents do not exist, the unused funds will be applied toward plan expenses.
17. Is the HRA for the employee only or for all family members?
The HRA fund can be applied to both the employee and all their eligible family members.
18. How will I know what my HRA balances are?
The HRA Administrator will maintain the HRA balance and reflect the portion of claims paid by the HRA account. You can check balances by visiting the administrator’s website or calling the 800#.
19. Who holds the HRA funds?
The funds are held, irrevocably, by a third party trust administrator. Plan Benefit Services of Austin, TX is the current trust administrator.
20. Are there fees associated with an HRA?
Yes. A "set up fee" and a “per employee per month fee” cover all HRA Plan costs - HRA Plan documents, reporting and claims administration. A “deposit based charge” covers all the Contractors Trust administrative costs – plan documents, accounting, legal and field administration.
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