To Establish a Health Reimbursement Arrangement (HRA), It Must… A Deep Dive into HRA Compliance
The world of employee benefits can be a labyrinth, and Health Reimbursement Arrangements (HRAs) are no exception. Setting up an HRA isn't simply a matter of deciding on a plan; it requires careful consideration of numerous legal and regulatory requirements. Failing to comply can result in significant penalties. So, let's unravel the intricacies of HRA establishment, ensuring you understand precisely what's needed to create a compliant and effective program.
This journey begins not with a checklist, but a story. Imagine Sarah, a small business owner, thrilled to offer her employees a valuable benefit—an HRA. She excitedly researches online, only to be overwhelmed by jargon and complex regulations. This article is for Sarah, and for anyone else navigating the complexities of HRAs. We'll demystify the process, step by step.
What exactly is an HRA?
Before diving into the requirements, let's clarify what an HRA is. An HRA is a type of employee benefit plan that reimburses employees for eligible medical expenses. Unlike a health savings account (HSA), the employer, not the employee, funds the HRA. This offers significant tax advantages to both the employer and the employee.
Now, let's address the crucial question: In order to establish a health reimbursement arrangement, it must… comply with several key regulations.
1. Comply with the Internal Revenue Code (IRC) Section 106:
This is the cornerstone of HRA legality. Section 106 of the IRC governs employer-provided health benefits, and HRAs must adhere to its stipulations. This section deals with the taxability of employer-provided health benefits and sets the stage for what expenses are considered qualified medical expenses.
2. Meet the Requirements of the Affordable Care Act (ACA):
The ACA introduced significant changes to the healthcare landscape, and HRAs are no exception. Specific ACA rules apply to HRAs offered in conjunction with other health plans, particularly when it comes to minimum essential coverage and affordability. These requirements prevent employers from circumventing the ACA's mandates. Understanding the interplay between HRAs and the ACA is paramount for compliance.
3. Be Properly Documented:
This isn't just about having a well-written plan document; it's about comprehensive documentation of all aspects of the HRA. This includes the plan's rules, eligibility criteria, reimbursement procedures, and a record of all employee reimbursements. Meticulous record-keeping protects both the employer and the employee.
4. Establish Clear Eligibility Criteria:
Who is eligible to participate in the HRA? The plan document needs to clearly define eligibility, which may include factors such as employment status, hours worked, and length of service. Arbitrary or discriminatory eligibility rules are a surefire path to non-compliance.
5. Define Eligible Medical Expenses:
What medical expenses are reimbursable under the HRA? The plan must explicitly list which expenses qualify for reimbursement. This could include doctor visits, prescription drugs, dental care, or vision care. Ambiguity here can lead to disputes and potential penalties.
6. Have a Reasonable Reimbursement Policy:
A crucial aspect is the establishment of a reasonable reimbursement limit. This isn't just an arbitrary number; it should be based on factors such as the type of HRA, employee needs, and the employer's budget. Excessive reimbursement limits can raise red flags with tax authorities.
7. Comply with ERISA (if applicable):
The Employee Retirement Income Security Act (ERISA) applies to HRAs if they are part of a larger employee benefit plan. ERISA imposes certain fiduciary responsibilities and reporting requirements on plan administrators.
What are the different types of HRAs?
Understanding the various types of HRAs is crucial, as the compliance requirements can vary depending on the type:
- Qualified Small Employer HRA (QSEHRA): Specifically designed for small businesses, the QSEHRA has simpler rules than other types of HRAs.
- Individual Coverage HRA (ICHRA): Allows employers to offer different HRA contributions to different classes of employees.
- Traditional HRA: A more traditional type of HRA.
Choosing the right HRA type is paramount; a mismatched HRA could put your company out of compliance.
The Bottom Line:
Establishing a compliant HRA requires careful planning and attention to detail. Understanding the regulations outlined above is essential to avoiding costly mistakes and ensuring your employees can benefit from this valuable employee benefit. Seeking professional advice from a qualified benefits consultant is highly recommended to ensure your HRA program is fully compliant.
Remember Sarah? By understanding these crucial steps, Sarah can confidently establish a compliant HRA, rewarding her employees and ensuring a smooth, stress-free process. Don't let the complexity scare you away from the benefits of offering HRAs; with proper planning and knowledge, it's a valuable addition to your employee benefits package.
