This chapter begins by identifying that an HRA may be used as a substitute for health insurance or a supplement to a health insurance plan. HRA design features are discussed next. Tax implications include a discussion of nondiscrimination rules, Internal Revenue Code eligibility and coverage requirements, and COBRA continuation of coverage. | What is it? Employer reimburses covered employees for specified medical expenses directly from corporate funds HRA is used as a substitute for health insurance as a supplement to provide payments for medical expenses not covered under company’s health insurance plan to pay for medical expenses in excess of company’s health insurance plan Copyright 2009, The National Underwriter Company When is it Indicated? Closely held corporation and shareholders and family are primary or only employees In professional corporation where only employee is high income professional or where are few other employees Employer would like to provide employees with medical benefits beyond basic medical Copyright 2009, The National Underwriter Company Design Features Plan adopted by corporate resolution specifies group of employees covered types of medical expenses that will be reimbursed any limits or conditions or payment by the company Employer reimburses employee for claims covered under plan Copyright 2009, The National Underwriter Company Design Features Benefits tax-free if qualify for medical expenses under IRS code plan is nondiscriminatory Broad range qualified medical expenses Plan can be fully funded or insured Insurance contracts provide (1) administrative services, (2) claims evaluation, (3) stop loss coverage Copyright 2009, The National Underwriter Company Tax Implications Employer may deduct 100% of cost of benefits paid to employees under plan plan administrative expenses cost of any insured stop loss coverage Annual employer deductions are limited Benefits tax-free unless plan is discriminatory Employee eligible for itemized medical expense deduction; limited to amount by which total of all eligible medical expenses exceed of taxpayer’s adjusted gross income Copyright 2009, The National Underwriter Company Tax Implications: Nondiscrimination Rules If fail nondiscrimination tests, benefits taxable to highly compensated employees Two tests coverage | What is it? Employer reimburses covered employees for specified medical expenses directly from corporate funds HRA is used as a substitute for health insurance as a supplement to provide payments for medical expenses not covered under company’s health insurance plan to pay for medical expenses in excess of company’s health insurance plan Copyright 2009, The National Underwriter Company When is it Indicated? Closely held corporation and shareholders and family are primary or only employees In professional corporation where only employee is high income professional or where are few other employees Employer would like to provide employees with medical benefits beyond basic medical Copyright 2009, The National Underwriter Company Design Features Plan adopted by corporate resolution specifies group of employees covered types of medical expenses that will be reimbursed any limits or conditions or payment by the company Employer reimburses employee for claims covered under plan .
