Self Employed Web

Health Reimbursement Arrrangement

Posted on Saturday, April 1st, 2006 by

NOTE: The HRA Plan was good in its’ day but the new  HSA (Health Savings Account) is a MUCH better option for most self employed people.  HSA Info

What is an HRA?

HRAs, or Health Reimbursement Accounts, were set up by the Federal government to allow employers to contribute to an account for their employees in conjunction with high deductible, consumer-directed health plans. These arrangements allow employers to provide funds on a monthly basis to accounts employees may use to pay for deductibles and other out of pocket costs in their health plans.

The difference between HRAs and Section 125 Flexible Spending Accounts is that balances left in the HRA at the end of the plan year can be rolled over into the next year. These unused balances can continue to be rolled over each year to help fund future medical expenses, retiree medical costs, COBRA premiums, and Long Term Care insurance premiums. These rollover dollars are held in a secure trust and earn interest on a quarterly basis. These funds are never taxed, as long as rules regarding the HRA funds are followed.

The other main difference between HRAs and Flexible Spending Accounts (Health Care Spending Accounts and Dependent Care Spending Accounts) is that Flexible Spending Accounts are funded with employee contributions – you decide how much you want to have deducted on a pre-tax basis to pay for eligible expenses. HRAs can only be funded with employer dollars .

What can I use HRA money for? Monies accumulated in the HRA may be used to pay for eligible expenses, including:

− Out of pocket medical, dental or vision expenses not reimbursed by insurance (coinsurance, copays, costs above annual benefit limits)

− Deductibles

− Prescription drug copays

− Over-the-counter medications to treat illness

NEW 4/1/2006

− Dental and Orthodontia copays or coinsurance

− Lasik or refractive eye surgery

− Eyeglasses, contact lenses, eye exams, etc.

− Additional hearing aid costs not covered by the ICUBA plan

− Retiree or COBRA health premiums

− Long Term Care premiums

− Any expenses eligible for Section 125 Flexible Spending Account reimbursement

Excluded expenses include: any medical expenses incurred by a non- participating dependent, non-medical expenses such as life or disability insurance premiums, cosmetic or weight loss expenses, non- retiree medical plan premiums, dental or vision premiums

One veteran Insurance Agent has these comments on an HRA:

You can only do it if you’re married and your spouse not only works for the business , but is on payroll. Even at that they can only deduct a portion of the wife’s pay related to the cost of the health insurance. You can also only do it if your businessis set up in a certain fashion – I believe sole-proprietorships are fine but S corps, LLC ‘s and people who are incorporated have to jump through more hoops. First of all, all self-employed people can deduct their health insurance premiums. Base is saying they can also deduct the premiums from state, local and self-employed taxes but again, only as a percentage of how much the spouse makes – and the spouse must be on payroll.HSAs destroy HRA 105s.

NOTE: The HRA Plan was good in its’ day but the new  HSA (Health Savings Account) is a MUCH better option for most self employed people.

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