A Health Reimbursement Arrangement (HRA) is an employer-funded situation that reimburses employees for medical expenses. It is solely funded by the employer and used by the employee to pay for medical expenses. While no specific tax provisions create or define an HRA, the Internal Revenue Service (IRS) has confirmed its tax-exempt status.
A Health Reimbursement Arrangement is a group health plan under the Affordable Care Act (ACA) and must comply with legal provisions applicable to group health plans, which include the prohibition on annual limits and coverage of preventive services. Because a Health Reimbursement Arrangement will fail to meet the ACA requirements on its own, it must be integrated with another group health plan to meet the legal requirements.
To be integrated with a group health plan, a Health Reimbursement Arrangement does not need to have the same plan document, file the same Form 5500 or be integrated with a plan sponsored by the same employer. However, a Health Reimbursement Arrangement must limit its use to employees enrolled in a group health plan, otherwise the HRA will fail to meet the legal requirements, exposing an employer to a $100 per day, per employee penalty.
For example, if an employee uses the Health Reimbursement Arrangement to cover medical expenses of his spouse and dependents, but the employee is enrolled in self-only coverage, the HRA will fail to be integrated with a group health plan. Similarly, if an employee is enrolled in a Marketplace plan and in the Health Reimbursement Arrangement, the HRA will fail to meet the ACA requirements. A Marketplace plan is not a group health plan, but rather an individual policy. These are just a few sample compliance concerns with HRAs, so employers are advised to be vigilant for related issues upon implementation.