HRAs Make a Comeback

A couple weeks before Christmas, Congress passed the 21st Century Cures Act. Quietly slipped in at the very end of the Act is a section reuathorizing the Health Reimbursement Arrangement for employers with less than 50 employees.

The Affordable Care Act eliminated this key business planning opportunity and employee benefit for all but the sole proprietor who had no other employees.

The Health Reimbursement Arrangement is an account funded only by the employer for use by the employee. The employee may withdraw the funds for qualified health care related expenses on a tax-free basis. This includes using the funds to pay for health insurance premiums and long-term care insurance premiums.

There are some new rules to keep in mind that did not apply to previous HRAs.

The employer must not already offer a group health plan for its employees. If the employer already offers group health insurance, it cannot also offer an HRA.

The HRA must be made available to all eligible employees. In determining who is an eligible employee, the employer may exclude all employees who have been employed for less than three years.

The employee must provide proof of coverage before funds may be disbursed for the payment or reimbursement of health care expenses.

The employee may withdraw a maximum of $4,950 per year ($10,000 for a family when the HRA covers the employee’s family members). There is some variation allowed in this figure based on the employee’s specific situation. The amount may be adjusted for inflation in future years, and the amount is also prorated when an employee is covered for less than the calendar year.

The employer is also required to provide employees with written notice, and the Act contains recommended language for the notice. Included must be a warning of the potential for the employee to be penalized for not maintaining adequate health insurance coverage, and a recommendation that the employee report the HRA to the Health Care Exchange when determining the amount of the employee’s premium tax credit amount.

Because the ACA eliminated the employer’s ability to offer tax-free assistance with their employees’s health insurance premiums, the new HRA may be just the ticket to help employees meet their health costs.


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    Climbing the Money Tree


    R. Joseph Ritter, Jr. CFP® is a CERTIFIED FINANCIAL PLANNER(TM) and founder of Zacchaeus Financial Counseling, Inc., a non-profit organization providing financial planning services to low-income households and households experiencing financial strain.

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