 Personal Finance PowerPoint Presentation Health Reimbursement Arrangement HRA Prepare to get financially fit by practicing personal finance. Insurance is part of our overall risk mitigation strategy where we follow the adage of measure twice, cut once, put in a formal process in place, looking something like set the goals, develop a plan to reach them, put the plan in action, review the results and repeat the process. Most of this information can be found at Investopedia Health Reimbursement Arrangement HRA, which you can find online. Take a look at the references, resources, continue your research from there. This is by Alexandra Twin, updated January 17th, 2022. In prior presentations, we've been talking about insurance in general, moving to the health insurance, and we're going to be putting this health reimbursement arrangement in the context of that discussion. So what is a Health Reimbursement Arrangement and HRA? A Health Reimbursement Arrangement HRA is an employer-funded plan that reimburses employees for qualified medical expenses and, in some cases, insurance premiums. Employers are allowed to claim a tax deduction for the reimbursements they make through these plans and reimbursement dollars received by employees are generally tax-free. So once again, this is a type of plan that we could be setting up possibly in alignment or in conjunction with our employer, the benefit, or the reason we would do it is to get a tax benefit from it. So how a Health Reimbursement Arrangement or HRA works? A Health Reimbursement Arrangement is a plan set up by an employer to cover medical expenses for its employees. The employer decides how much it will put into the plan and the employee can request reimbursements for actual medical expenses incurred up to that amount. All employees in the same class must receive the same HRA contributions. So it's a type of benefit program that we can have set up in the employer-employee situation. The reason the benefit programs are good oftentimes is because the employer and the employee both would like to have the compensation that is being received go as far as it can. So clearly, if you're receiving cash, that's going to be W-2 cash that you are receiving for your wages, that's great, but it's going to be subject to the taxes, including the federal income taxes, social security Medicare, and so on. If they can give you benefits that possibly aren't subject to the taxes, those benefits could be a form of compensation that might go further in some regards because they're not going to be subject to the tax and that's the point of setting up some of the business benefit programs oftentimes from the employer. And HRA is not an account. Employees cannot withdraw funds in advance and then use them to pay medical expenses. Instead, they must incur the expense first and then have it reimbursed. The general concept here, employer putting money into the HRA, which is available under certain conditions, those certain conditions, not basically in the format of the employee taking the money out to pay for certain expenses, but rather incurring the expenses and possibly then being reimbursed for the expenses that they incurred if they are qualified expenses. Reimbursement at the time of service is possible if the employer provides an HRA debit card. So if you have a debit card that might make it a little bit easier and employee who uses up all of the allocated funds in the HRA before you year end will have to cover any subsequent health bills out of pocket or with the funds in a flexible spending account. That's the FSA that we talked about in prior presentation. Also known as a flexible spending arrangement. Flexible spending arrangement. When available or a health savings account that's the HSA that we talked about in prior presentation for employees who have a high deductible plan. So obviously a lot of these terms can be a little bit confusing to try to separate between them. So you can kind of navigate when going over each of these terms. We've got the HRA, we've got the FSA, the HSA and the high deductible plans, which are the HDHBs. So types of HRAs. There are a few kinds of health reimbursement arrangements. Qualified small employer health reimbursement arrangements. That's the QSEHRA. A qualified small employer health reimbursement arrangement and QSEHRA. That's not a very, that acronym is almost as long as the whole phrase, but in any case is a health coverage subsidy plan for employees working for businesses that employ less than 50 full-time workers. So clearly some of these plans are something that you might talk to your employer about to see if you can possibly get some tax benefits and see if their compensations can go a little bit further if they give you some kind of benefits by having the tax benefits from them. Also known as a small business, HRA, a QSEHRA can be used to offset health insurance coverage or repay medical expenses that would be otherwise uncovered. The yearly limits are set by the Internal Revenue Service, the IRS for 2021 accompany with a QSEHRA can reimburse individual employees for up to $5,300 per year and employees that have families for up to $10,700 per year raising to $5,450 for individuals and $11,054 families in 2022. The money that is reimbursed and is tax-free for the employees and tax deductible for the employers, which again is great because obviously the employers, if they're paying the money, they want to be able to deduct it because it's an expense for them and the employees, if they can get the money, even though they have to use it for, you know, they got to reimburse it and use it for the qualified things, if they can get benefit and not have to pay the taxes on it because it would be income to them, that would be good. So it's good for both sides. So individual coverage, HRA, IC, HRA and individual coverage, HRA, which could be called an IC, HRA is relatively new, having only been available since January 2020. Previously, HRAs could not be used to pay for individual health insurance premiums, but as of January 2020, the government allows employers to offer their employees a new type of HRA called an individual coverage HRA instead of group health insurance. So we've talked about group health insurance. Oftentimes when we think about health insurance, the first place we go to is our employer because sometimes they have the capacity to get, say, a group health insurance plan and or have tax benefits. So that's usually one of the more beneficial place to look because of that group coverage. But now we've got the individual coverage HRA instead of the group health insurance. So employees can use these HRAs to buy their own comprehensive individual health insurance with pre-tax dollars, either on or off the Affordable Care Act's health insurance marketplace. Individual coverage HRAs can also reimburse employees or qualified health expenses such as co-payments and deductibles. Whether or not your IC, HRA makes you eligible for a premium tax credit to help pay for health insurance coverage under the Affordable Care Act depends on whether your employer's IC, HRA meets minimum standards for so-called, quote, affordability, end quote, and whether you choose to opt in or opt out of the coverage. So this all gets a little bit confusing because if you were going to be purchasing the coverage on the marketplace and your income was below a certain threshold, then generally you possibly could qualify for the tax credit possibly. And so then you've got to make sure if you're taking that into the consideration, this could complicate banners a little bit to see if you can qualify for the tax credit that could basically possibly be available if your income is below a certain threshold and you buy the insurance through the marketplace. Okay, accepted benefit HRAs, this is the EBHRA. In addition, employers that continue to offer traditional group health insurance can offer accepted benefit HRAs. Those are the EBHRA to reimburse employees for up to $1,800 a year in qualified medical expenses. Employees can enroll in an, quote, expected benefit HRA, end quote, even if they decline group health insurance coverage, but they cannot use the funds to buy comprehensive health insurance. They can, however, use the funds to pay for short-term health insurance dental and vision insurance premiums and qualified medical expenses. Benefits of health reimbursement arrangements. HRAs can be used to pay for qualified medical expenses, which include prescription medication, insulin, an annual physical exam, crutches, birth control pills, meals made for will receiving treatment at a medical facility, care from psychologist or psychiatrist, substance abuse treatment, transportation cost incurred to get medicine care and much more. Employers can also use HRAs to buy their own comprehensive individual health insurance with pre-tax dollars through the aforementioned individual coverage HRA, that's the IC, HRA. Limitations on the health reimbursement arrangements. An HRA only covers qualified medical and dental expenses according to the Internal Revenue Service, the IRS, medical expenses are cost incurred to alleviate or prevent a physical or mental ailment, not expenses to maintain general health such as vitamins. So, again, people try to expand and say, okay, my medical benefits, I got my walking shoes, that's for my medic, my sneakers, our medical benefits or something like that, right? So, obviously, they got to put some restrictions on what the medical benefits are. Expenses that do not qualify as a necessary medical expense include, for example, teeth whitening, because that's going to be, they say that's cosmetic, maternity clothes, so buying your wardrobe is not typically, even though obviously I could see why you could imagine that, but they got to draw the line somewhere, funeral services, health, obviously that's not really medical, that's kind of after the medical thing, health club membership, so you can't buy your membership to the gym, but that's healthcare, yeah, they don't buy controlled substances, childcare for a healthy baby, marriage counseling, medication from other countries, so you got to buy, you know, actually qualified medication from the FDIC, which is a lot more expensive, I understand, but that's how it is, prescription medications, so an employer may exclude certain medical expenses, even though the expenses are qualified by the IRS, an employer's list of reimbursical medical expenses will be outlined in its HRA plan document for employees. Pros can be used to pay for medical and dental expenses, such as prescription medications, an annual physical exam and birth control pills can be used to pay for individual health insurance with pre-tax dollars, reimburses employees after they've paid for certain medical expenses and insurance premiums, what are the cons? They can't be used for costs that aren't deemed necessary, such as teeth whitening, funeral services, non-prescription medication. I can't get my non-prescription drugs from, that's ridiculous, so it is set up by employer who decides how much money goes into the plan, obviously if it's going to be set up by the employer, the employer's got some control and some say in how this is going to work, and can't withdraw funds first, then pay expenses, they must pay first and then wait to get reimbursed, so that can be a cash flow kind of issue, because obviously you got to pay for it before you get the reimbursement, which could be a cash flow kind of problem, but it's nice to be reimbursed, so health reimbursement arrangement versus other arrangements, so we've got the pros and the cons, the comparing and contrasting here, and employee who has both an FSA and an HRA, so we talked about FSAs in the past, and has expense that is eligible to be reimbursed for both plans, can't choose which will cover the expense, instead the cost will be reimbursed by the plan that the employer has set up to pay first, so they got to kind of, if you got two of these together, the employer's got to kind of work out how this is going to work, so when this primary plan has been depleted, the second plan will be used to cover any subsequent eligible medical expenses that are reported for reimbursement, I know it's confusing, it's getting really confusing at this point, here's a closer look at two other options for funding out-of-pocket medical expenses, you got the FSA, an FSA which we talked about in prior presentations is funded using a portion of an employer's pre-tax salary, same kind of reason we're trying to get a tax benefit by doing this, that's why we're doing all this confusion, this is why in the world are we doing taxes, taxes mess everything up, and in contrast to an HRA each employee determines how much money should go into these arrangements annually, up to $2,750 in 2021 $2,850 in 2022 unused funds in an HRA's may be carried over to the following year according to the description of the employer unused FSA funds generally cannot be used in the next planned year, although an employer may offer either a short grace period 2.5 months or allow up to $550 to be carried over. Rules about the usage of unused FSA funds were temporarily changed as a result of the COVID-19 pandemic, now what didn't change, it changed a bunch of stuff with the passing of the Consolidated Appropriation Act in 2021 which was signed into law by former President Donald Trump at the end of December 2020 employers can carry over money up to the full annual amount allowed $2,750 from 2020 to 2021 and from 2021 to 2022 the healthcare FSA's. An HSA which we talked about in more depth in a prior presentation, so doing some comparing some contrasting here in comparison to an HRA this is an HSA, not an HRA, don't get them confused, there's like one letter is total, that second letter is totally different between these two, so it's totally different thing. A health savings account an HSA is a fully vested tax advantage account that is not subject to the forfeiture if funds remain in the account at the end of the year. An HSA is paired with a high deductible health plan, so we talked about this in a prior presentation, you got to have the high deductible health plan which the HSA and we talked about the pros and the cons and why you might have a high deductible health plan, so you can take a look at that in more detail to pay for the medical and dental expenses. The account is funded by the employee or employer and like an FSA cannot be used to pay insurance premiums. Unlike HRA's and FSA's employees get to keep their HSA's if they change employers which is nice. An HRA funding and portability HRA funding and portability the health reimbursement arrangement is funded solely by the employer which also decides the maximum annual contribution for each employee's HRA so it's a lot involved on the employer side of things here you got to set this thing up. Employers determine how much to contribute to an employee's HRA's except that all workers in the same class of employees must receive the same contribution as noted above so in other words the employer has the option to be setting up the HRA's but they can't like discriminate between employees of the same kind of class because obviously they have to set it up equally according if they decide to set it up they got to set it up in accordance with the rules or whatever they're going to set it up within and those need to be consistent throughout the employees and the workers so workers who are older or who have dependents may receive more any HRA money that is unspent by year end may be rolled over to the following year which is nice although an employer may set a maximum roll over limit that can be carried over from one year to the next. Furthermore if an employee is terminated or leaves the company to work for another firm the HRA does not go with them so it's a pretty custom kind of thing here so it's kind of hard to transfer the thing from one place to another that makes it difficult that makes it different from an HSA health savings account which is portable so that's kind of the benefit of the HSA is it's more easy to go from one place to another HRA tax advantages a benefit to employers reimbursements through the HRA are 100% tax deductible which is great because the employer is kind of kind of paying benefits here and so you would think it would just be an expense to them which means it's deductible as an alternative to more expensive retire E health care and employer may use an HRA to cover the health costs of retired employees in addition since the plans are fully funded by employers they offer predictability allowing employers to anticipate their approximate maximum expense for HRA health benefits for the year that's nice. Employees may use the arrangement to pay for a wide range of medical expenses not covered by their health insurance plans depending on the HRA type they may also use it for medical dental and vision insurance premiums which is nice furthermore reimbursements are tax free up to the maximum amount for a coverage period that's the point we're getting tax benefits on this that's why we're doing all this why are we doing all this crazy this is just nuts taxes it's the tax taxes so some businesses may offer employees the added advantage for employer provided health benefits such as an FSA in conjunction with an HRA so what is an HRA in health insurance a health reimbursement arrangement HRA is a plan an employer sets up to cover employee medical expenses how does an HRA work the employer determines the amount of money that will go into the plan and the employee can ask to be reimbursed for qualified medical expenses up to the designated amount as we have seen employers can take a tax deduction for the reimbursements made through these plans and the reimbursements given the employee are usually tax free which is the point that's great what is an HRA versus HSA a health reimbursement arrangement HRA is a benefit used to pay employees back in tax free money for certain qualified medical expenses and health coverage premiums health savings account HSA is a tax advantage account used by individuals covered under high deductible health plans we talked about that more in prior presentations looking to save up to cover the cost of qualified medical expenses can I cash out my HRA no HRA money that hasn't been used by the end of the year can usually be rolled over to the next year with an employer determining the maximum amount that can be from one year to another what qualifies for an HRA reimbursement medical and dental expenses that are considered to be quote necessary in quote such as annual check up prescriptions or a substance abuse treatment so not like your new sneakers that you use to like walk because walking is healthy that you know that you got to draw the line somewhere in this so what's the bottom line a health reimbursement arrangement HRA is a tax advantage plan that employers use to reimburse employees for certain approved medical and dental expenses the plan amount is determined by the employer up to a yearly limit and the employee can be reimbursed up to that amount the reimbursements paid to the employee are tax free and the employers can claim a tax deduction for the reimbursements that they make a qualified small employer health reimbursement arrangement otherwise known as QSEHRA so easy to remember that acronym QSEHRA is just rules off the tongue is an HRA for smaller companies that have less than 50 full time workers and individual coverage HRA that's the good old everyone knows that one too it's the ICHRA allows employees to buy their own individual health insurance with pre tax dollars and then the employees with an ICHRA can be reimbursed for health expenses such as co-payments and deductibles it's all crystal clear I hope everyone knows the difference between all these terms and whatnot and take a look at the prior presentation so you can do your mixing and matching it and try to line these things up so we get a grasp of them