The rules have changed for Health Reimbursement Arrangements (HRAs). Business owners who have such plans should scrutinize them carefully to ensure they comply with important reforms enacted as part of the Affordable Care Act (ACA).
Health reimbursement arrangements (HRAs) are tax-advantaged group health benefit plans that reimburse participants for qualified medical care expenses. Prior to 2014, many employers used HRAs as a way to help employees purchase individual insurance coverage. For example, an employer may not have offered health insurance coverage, but instead contributed $4,000 each year to an HRA for each employee. The employee could then use some or all of the funds in the HRA to purchase an individual health insurance policy. The employer was able to deduct the $4,000 as a business expense, but the employee wasn’t required to report that amount as a taxable benefit.
The rules have changed. These plans can still be a great “win-win” for employer and employee, but the plans must be designed with great care. What worked a few years ago may no longer work today, and failure can lead to disastrous penalties. Please contact us to ensure that your HRA plan is in compliance with regulations.