An HRA plan document for your health reimbursement arrangement is an important component to the arrangement between employers and their employees allowing for tax-free medical expense and insurance premiums reimbursement. Here's what to include in an HRA plan document for your QSEHRA or ICHRA.
HRAs are built on a series of regulations to make sure they are being offered fairly, and also do their best to prevent the reimbursements from being used for things like executive compensation, fraud, discrimination, money laundering, etc.
These rules and regulations can change from year to year, and it’s important to keep up with them in order to stay compliant and avoid fees and penalties. Today, let’s look at what should be included in an HRA plan document.
Types of HRAs
There are several HRAs available today, but the two major types of HRAs that business owners should know about are relatively new to the market. They are ICHRA (individual coverage HRA), a 401(K) style benefit solution with no company size limitations or reimbursement limits, and QSEHRA (qualified small employer HRA), which is designed for companies with less than 50 employees. These are the only HRAs that allow employers to reimburse for health insurance premiums and qualified medical expenses.
How HRAs work
First, the business owner sets the monthly reimbursement amount and the employees purchase an individual health plan that works best for them. After an employee submits receipts, the business owner simply reimburses them. The funds aren't subject to payroll tax from an employer standpoint and aren't considered income for the employee and taxed accordingly. Plus, the employer can skip the hassle of choosing and administering a group plan that would bring with it premium hikes and participation rate requirements.
Employers and employees need to be aware of some HRA account rules and guidelines, which can vary depending on the type of HRA provided. Take Command Health’s small business tax strategy HRA guide can help direct you to the best one for your business.
What should be included in an HRA plan document
The legal agreement establishes the HRA for the employer and should include:
- Named fiduciaries and plan administrators and their responsibilities
- Eligibility requirements for the HRA
- Effective dates of participation
- Description of benefits provided and excluded
- How the HRA is funded and how it makes payments
- Claims procedures
- HIPAA privacy officers and rules relating to the use of protected health information (PHI)
- Information on federal mandates
- The procedure for amending the plan
- The procedure for plan termination
Employees must be provided a written notice in the form of a Plan Summary. The Plan Summary is a condensed, user friendly explanation (psst: go easy on the legal-ease!) of the HRA benefit and how it works.
The employee notice must contain the following:
- The allowed benefit amount per employee
- A start date for the employee
- A statement that the eligible employee must inform any Marketplace to which the employee applies for advance payment of the premium tax credit of the amount of the provided benefit
- A statement that the amount of the provided benefit may affect the eligibility for and the amount of the premium tax credit.
- A statement informing the employee that they should retain the written notice because it may be necessary to calculate the premium tax credit on the employee’s individual income tax return.
- Since the ICHRA requires employees to purchase an ICHRA qualified plan for themselves (as opposed to picking a tier option from an employer sponsored group health plan), the employee notice is designed to guide employees in the process of purchasing health insurance from the marketplace which can be confusing if they haven't done so before. ICHRAs must provide a 90 day notice to eligible employees regarding the ICHRA and its interaction with premium tax credits and of the qualifying 60 day Special Enrollment Period (SEP) that is activated when an employee gains access to ICHRA.
Take Command Health's small business platform can help
As the only HRA administrator that also offers health insurance on the individual market, Take Command Health can provide the best on- and off-market options for employees based on their needs, budget, preferred doctors and prescriptions.
We'll handle all the accounting and legal legwork, take care of onboarding each of your employees, and make tax time easy and painless. You'll never have to hassle with receipts or worry about setting up a health plan again.
Reach out to one of our HRA experts to get started today!