A Health Reimbursement Arrangement or an HRA can be the best secret weapon your business can use right now to save on health care costs. With an HRA, you can give employees a monthly allowance to spend on their own health insurance policy, and reap major savings. On the individual market, health plans are much less expensive than group coverage.
Structuring an HRA
An HRA is an agreement that allows your business to cover employees’ health care expenses, including individual health insurance premiums. An HRA needs to comply with IRS requirements to maintain preferred-tax treatment. To be in compliance:
- A medical connection must be present for HRA reimbursement
- Proof for medical expenses that are reimbursed must be kept (i.e. a receipt)
- Any excess amount reimbursed that exceeds actual expenses must be returned to the employer.
If the above requirements are met, then the money received by employees under the HRA is excluded from their gross income and it’s tax deductible to your business.
Special HIPAA Privacy Rule Requirements
HRAs are also bound by the HIPPA Privacy Rule. Employers are not permitted access to HIPAA-protected medical cost details. That includes the medical expenses covered by health insurance. To avoid HIPPA violations, most companies use a third-party to handle the medical expense substantiation process.
Setting up an HRA
Here are the steps you need to set up your company’s HRA:
1. Develop your HRA plan. Set employee eligibility requirements, determine what expenses are reimbursable, and state the amount of the monthly HRA contribution.
2. Enroll eligible employees. Send required plan documents and notices to eligible employees.
3. Employees can buy their own individual health insurance policy and submit proper documentation for reimbursement.
4. Use a HIPAA-complaint claims processor to review reimbursement requests.
5. Reimburse employees for approved claims up to the available HRA balance.
It may only take about five minutes online every month for HRA administration. And, employees can buy their own health insurance on the individual market. Employees earning below 400 percent of the federal poverty level (that’s about $92,000 for a family of four) annually may be able to get federal premium subsidies if you do not provide a group health insurance policy.
If you decide to set up an HRA, HSA for America has a systemized and inexpensive way to do it all online. You can read more about HRAs and how to establish one online at www.HSAforAmerica.com/HRA.htm.