- HRA Plan Design Example
- O.C.A./QualCare (APEHP) Partnership
- HRA PCORI Fee
- HRA Tax Advantages
- HRA/HSA Interaction
- HRAs and COBRA
- HRA Eligibility
- HRA and Healthcare Reform
Here is an example of how an HRA might work in conjunction with a common high-deductible health coverage (HDHC) arrangement….
An employer has an insured plan with high-deductible health coverage (HDHC), but with first-dollar coverage for preventive services to the extent required by health care reform. The employer pays 50% of the HDHC premium, and employees pay the other 50% with pre-tax salary reductions under a cafeteria plan. Employees who participate in the HDHC also participate in an employer-funded HRA with a $1,000 annual benefit that can be used to pay for co-payments, co-insurance, and deductibles under the HDHC. Any unused HRA amounts remain with the employer or can be carried over from year to year for reimbursement of the same types of expenses.
The O.C.A./APEHP MEWA partnership includes administrative services for:
- HRA’s and FSA’s- Set up and Renewal fee of $250 per group. No additional fees apply!
- COBRA/State Continuation administration at no additional cost! This includes administration of all ancillary plans offered by the group regardless of whether the plans are affiliated with APEHP.
- Direct claim feed from APEHP to O.C.A. – No Hassle for the employees!
- For additional information on HRA/FSA/COBRA/State Continuation administration please contact our sales team at 609-514-0777 firstname.lastname@example.org.
What is the Patient-Centered Outcomes Research Trust Fund fee?
The Patient-Centered Outcomes Research Trust Fund fee is a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans that helps to fund the Patient-Centered Outcomes Research Institute (PCORI). The institute will assist, through research, patients, clinicians, purchasers and policy-makers, in making informed health decisions by advancing the quality and relevance of evidence-based medicine. The institute will compile and distribute comparative clinical effectiveness research findings.
How much is the fee?
For policy and plan years ending after Sept. 30, 2013, and before Oct.1, 2014, the applicable dollar amount is $2. For policy and plan years ending after Sept. 30, 2014, and before Oct. 1, 2015, the applicable dollar amount is $2.08. For policy and plan years ending after Sept. 30, 2015, and before Oct. 1, 2019, the applicable dollar amount is further adjusted to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services.
Which individuals are taken into account for determining the lives covered under a applicable self-insured health plan (HRA)?
Under the HRA, the fee calculation is determined based on the number of participants enrolled in the HRA. This means that dependents and any other beneficiaries can be ignored.
Example HRA PCORI Fee Calculation:
ABC company has 20 enrolled HRA Participants (each have family Coverage), which consist of a total life count of 50 lives. The plan ends on 12/31/14. The employer PCORI fee would be (20 Employees X $2.08) $41.60. This is based on the 20 participation life count. Again, under the HRA, the dependents and beneficiaries do not count towards the fee calculation. This fee will be due July 31, 2015.
Who is responsible for reporting and paying the PCORI fee?
Issuers of specified health insurance policies and plan sponsors (the employer) of applicable self-insured health plans are responsible for reporting and paying the PCORI fee. O.C.A. is legally not allowed to pay the PCORI fee on behalf of the client.
What form will be used to report and pay the PCORI fee?
Issuers of specified health insurance policies and plan sponsors (employers) of applicable self-insured health plans will file annually Form 720, Quarterly Federal Excise Tax Return, to report and pay the PCORI fee. The Form 720 will be due on July 31 of the year following the last day of the policy year or plan year. Electronic filing is available but not required. Payment will be due at the time the Form 720 is due. Deposits are not required for the PCORI fee.
Who Pays the PCORI Fee?
For HRAs, the Plan Sponsor (the employer) must pay a fee for each covered employee. This fee is due July 31st of the calendar year following the end of the plan year being reported. The fee is remitted using IRS Form 720, the Quarterly Federal Excise Tax Return.
Each applicable employer will have to make a check payable to the “United States Treasury Department” and mail to the below address.
Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999-0009
What is O.C.A. doing to assist your organization?
Legally, O.C.A. cannot remit and pay the PCORI fee on behalf of the employer. As a result, as a value added service O.C.A. will determine (every year) the fee amount each employer owes. The fee can be determined using calculation methods offered by the IRS.
How did O.C.A. calculate your fee?
O.C.A. used the “Actual Count Method to determine the fee for each applicable employer. Remember, the fee is only for the participant. It does not factor in any dependents. Actual Count Method: A plan sponsor may determine the average number of lives covered under a plan for a plan year by adding the totals of lives covered for each day of the play year and dividing that total by the total number of days in the plan year. O.C.A. will issue a report by mid June of each year identifying the amount owed. Employers should consult with their tax consultant to review the IRS Form 720.
If an HRA is designed and operated in compliance with IRS guidance, employees will not be taxed on the value of their HRA coverage or on reimbursements that they receive from the HRA, under Code §§105 and 106. The employer will, subject to certain conditions and limitations, be entitled to a deduction for reimbursements made under the HRA.
Although general-purpose HRA coverage will prevent an individual from being eligible for HSA contributions, there are certain HRA designs that still permit the individual to make HSA contributions (assuming the individual was enrolled in an HSA compatible health insurance plan). The most common design that allows the HRA and HSA to interact is the “stacked HSA/HRA or formally called a “post-deductible HRA”. By implementing the “stacked HSA/HRA” plan design, employers will not only have the ability to maintain cost, but they will also have the comfort of offering high level benefits to their employees.
Company “ABC” has a HSA compatible medical plan- $2,500/$5,000 deductible.. Employee funded HSA Account: Employee can fund up to $3,350 in 2016 for single coverage and $6,750 for employee with dependent coverage, less any employer HSA contribution. Contributions funded through the 125 plan are pre-tax for Federal & FICA, however not for state tax in NJ, AL, & CA. Once the employee has incurred the minimum annual deductible of $1,300 (single) or $2,600 (employee + dependent), employer funded HRA can reimburse 100% of the remaining $1,200/$2,400 of deductible for any employee reaching this out of pocket level. If the employee decides to fund the HSA account over the federal minimum ($1,300/$2,600), they now have what we like to call a “Turbo Charged FSA account” with no use it or lose it rules applicable, flexibility to change their elections at anytime for any reason, all in an interest bearing account.
An HRA is a group health plan generally subject to COBRA’s continuation coverage requirements. COBRA requires that health coverage be continued for COBRA qualified beneficiaries upon the occurrence of certain specified qualifying events, such as death, divorce, or termination of employment. The special health FSA rule that limits a health FSA’s COBRA obligation will not be available to most HRAs. If an employer is subject to COBRA, it must offer qualified beneficiaries who lose their HRA coverage due to a COBRA qualifying event (e.g., termination of employment or divorce) the opportunity to continue their HRA coverage for the COBRA-prescribed time period (e.g., 18 months for termination of employment). Even HRAs with spend-down features must offer COBRA. And, each qualified beneficiary has an independent right to elect COBRA continuation coverage under the HRA
An HRA may provide tax-free benefits only to employees, former employees, retirees, and their spouses, covered tax dependents, or children who are under age 27 by the end of the taxable year. But every individual covered by an HRA that is integrated to comply with health care reform’s annual limit prohibition and preventive health services mandate must also have other compliant group health plan coverage. And HRAs cannot provide tax-free benefits to self-employed individuals (e.g., sole proprietors, partners, and more-than-2% Subchapter S corporation shareholders) because self-employed individuals are not “employees.”
IRS Notice 2015-7 and 2015-87
This guidance forecloses the possibility of establishing individual premium reimbursement arrangements with different employees.
The guidance clarifies that an unconditional increase in compensation—i.e. the money can be used for anything– accompanied with information about the Exchange/individual market does not constitute an employer payment plan; however, taxing payments/reimbursements for individual market coverage does constitute an employer payment plan.
HRAs are subject to various legal requirements which arise under provisions of the Code, are the subject of IRS guidance, and have their own enforcement mechanisms. One example is the excise tax for noncompliance with the Code’s version of the PHSA mandates. Noncompliance with those mandates may trigger self-reportable excise taxes under Code §4980D of $100 per day with respect to each individual to whom the failure relates, although reasonable diligence and timely correction may prevent their imposition.
HRAs are subject to many additional legal requirements such as the following:
ERISA. An HRA is likely to be a “welfare benefit plan” that will be subject to the Employee Retirement Income Security Act of 1974 (ERISA), unless it is a governmental plan or a church plan. quarterly). See additional information on HRAs and ERISA below.
COBRA. IRS guidance provides that COBRA will apply to an HRA. However, the IRS has not given specific guidance on how COBRA applies to an HRA. This leads to difficult issues, such as who is entitled to elect COBRA, the premiums to be charged, and the benefits available.
Medicare Secondary Payer (MSP) Requirements (Including MMSEA Reporting). HRAs are considered group health plans subject to the Medicare Secondary Payer rules and are generally required to comply with the MMSEA mandatory reporting requirements, which help CMS identify when group health plans are primary to Medicare.
HRAs and ERISA
Most HRAs are employee welfare benefit plans and, as such, are subject to ERISA unless an exemption applies, such as the exemption for governmental plans or church plans.If an HRA sponsor is an employer that is subject to ERISA, all of ERISA’s requirements for welfare benefit plans apply to the HRA, including reporting and disclosure, fiduciary responsibility, and administration and enforcement.HRAs are also “group health plans” and must comply with additional ERISA requirements such as HIPAA and COBRA (discussed previously), and they are subject to ERISA’s claims procedure, summary plan description (SPD), and summary of material modifications (SMM) requirements applicable to group health plans.
Below is a brief summary of ERISA’s requirements as they apply to HRAs.
Written Plan Requirement
Reflecting the HRA in a written plan document is important for a variety of reasons, including compliance with (a) the statutory requirement that there be a written plan document; (b) the requirements of ERISA and other federal mandates for specific plan provisions; (c) reporting and disclosure requirements; and (d) the fiduciary’s duty to follow the plan document.
Among other things, the HRA plan document must—
- specify a “named fiduciary”;
- describe any procedure for the allocation of responsibilities and operation of the HRA;
- specify a procedure for amending the plan, and for identifying the person having the authority to amend the plan; and
- specify the basis on which payments are made to and from the plan.
|ERISA Compliance for HRA+HDHC and Other Integrated HRAs. In determining how and whether the following ERISA requirements and exemptions apply to an HRA, it is necessary to look at how the HRA fits into the employer’s overall welfare benefits structure. For example, if an HRA and HDHC are offered as an integrated arrangement under a single ERISA welfare plan, features of the HDHC may affect how and whether a particular ERISA requirement or exemption applies to the HRA+HDHC. For example, a stand-alone HRA might be exempt from filing a Form 5500 (because it is a small unfunded plan), but if the same HRA were integrated with HDHC funded through a trust, the HRA might be subject to the Form 5500 filing requirement as part of the integrated HRA+HDHC.
But remember: A plan sponsor should not assume that ERISA compliance efforts involving, for example, the HDHC portion of an integrated arrangement will meet ERISA’s requirements as they apply to the employer’s HRA. The insurer for an insured HDHC benefit might provide the employer with a benefits booklet that serves as the SPD for that benefit. However, if the employer offers an HRA in conjunction with the HDHC, the employer must ensure that SPD disclosures regarding the HRA are also made in compliance with ERISA’s requirements.
ERISA Form 5500: HRAs That Are Exempt
ERISA §103(a)(1)(A) requires that every employee welfare benefit plan file an annual report with the DOL. Consequently, ERISA requires an HRA sponsor (the employer, in the case of a single employer plan) to file an annual Form 5500, unless a regulatory exemption applies. Several regulatory exemptions from the ERISA Form 5500 filing requirement for welfare benefit plans are available. Those exemptions most likely to be available for HRAs include exemptions for welfare benefit plans that—
- cover fewer than 100 participants and are unfunded, fully insured, or a combination of insured and unfunded;
- are governmental plans; or
- are church plans under ERISA §3(3).
SPDs and SMMs
An HRA that is subject to ERISA must furnish an SPD to each participant within 90 days after he or she becomes covered by the HRA. There are very few exceptions to the SPD requirement. It applies, for example, even to HRAs that are not required by ERISA to file a Form 5500 under the regulatory exemption for certain small welfare plans (e.g., those that are unfunded and have fewer than 100 participants.)
The HRA’s plan administrator must also furnish an updated SPD at least every five years (if the plan has been amended) and an entirely new SPD at least every ten years (whether or not the plan has been amended). Also, to keep the SPD up-to-date, an SMM must be furnished within 210 days after the end of any plan year in which a modification or change is adopted (or, in the case of a material reduction in covered services or benefits, 60 days after the date the reduction is adopted). (In some circumstances, health care reform’s summary of benefits and coverage (SBC) rules effectively accelerate the requirementto provide an SMM for HRAs that are not excepted benefits.
Application of SBC Requirement to HRAs
Health care reform expands ERISA’s disclosure requirements by requiring that a four-page “summary of benefits and coverage” be provided to applicants and enrollees, before enrollment or re-enrollment. The summary (referred to as the SBC) must accurately describe the benefits and coverage under the applicable plan or coverage. 1Under the final regulations, the requirement applies beginning with the first open enrollment period beginning on or after September 23, 2012 for participants and beneficiaries enrolling or re-enrolling through open enrollment. For individuals enrolling other than through open enrollment (e.g., newly eligible individuals or special enrollees), the requirement applies beginning on the first day of the first plan year that begins on or after September 23, 2012.For calendar-year plans, this means that SBCs will first be required during open enrollment in 2012 for the 2013 plan year. Willful failures to provide an SBC are subject to fines of up to $1,000 per failure.
A Health Reimbursement Arrangement (HRA) is an employer-funded arrangement that reimburses employees and dependents (if applicable) for certain healthcare expenses…
Typically, an employer creates a notional (i.e., unfunded) arrangement for each participating employee and then reimburses the employee for substantiated, qualified healthcare expenses up to the employee’s HRA account balance. While not required, a Health Reimbursement Arrangement (HRA) is usually offered in conjunction with a High Deductible medical plan which significantly lowers the insurance premium. A portion of this premium savings is used to reimburse plan participants when unreimbursed qualified expenses are incurred. Typically, after all expenses and premiums are paid, the HRA results in a net reduction of costs ranging from 15%-25%.
Since 2004, O.C.A. has been providing compliant HRA administration. We’re more than just a back office administrator processing reimbursements. O.C.A. is at the forefront working to provide a real solution for your corporate goal of maintaining benefits and containing costs. Our focus extends beyond superior claim processing as we work together with all the parties involved to show how quality healthcare is actually less expensive to delivery than poor quality healthcare. Our industry leading education tools and communication services have consistently resulted in lower cost utilization.