Q&A on BMS LLC Health Reimbursement Arrangements (HRAs)

What is a Health Reimbursement Arrangement?
Health Reimbursement Arrangement (HRA) guidelines were issued in 2002 by the IRS as a way for employers to save costs on rising health insurance premiums. An HRA must be funded solely by the employer and cannot include a salary reduction election as a Section 125 Cafeteria Plan (FSA) does.

In 2013, the Affordable Care Act (ACA) made revisions to HRA guidelines that state an Employer must offer a qualified group medical plan in order to offer a HRA for its employees that reimburses medical expenses.  In order to offer a Bridge or Comprehensive HRA, an Employer must also offer a group medical plan that meets ACA standards for excepted benefits.

What are the different types of HRAs and how do they work?
The employer determines the HRA plan design of its choice. There are numerous options available to employers when designing the HRA; however, BMS LLC has narrowed the options to a few general categories. There are three general categories for an HRA which allow tremendous flexibility:

  • Bridge Plan – With a Bridge Plan, the employer will typically change its health insurance plan to a higher deductible and higher out-of-pocket maximum. By changing to the higher deductible/out-of-pocket maximum, the monthly premiums should be reduced significantly. The employer then uses the savings on the health insurance premium to fund an HRA, administered by BMS LLC, to cover potential claims that would apply to the higher deductible and the out-of-pocket maximum.
  • Comprehensive Plan – With a Comprehensive Plan, the employer can include components of the Bridge Plan, but extend the HRA to cover expenses such as office visit co-pays, Rx co-pays, dental expenses, visit expenses, etc. The “Cadillac” version of the HRA can provide a vast array of benefits to employees, all covered under the employer funded HRA.
  • Limited Plan – With a Limited Plan, the employer may only cover expenses such as dental or vision, or limit the HRA to specific health insurance expenses. This option is a wonderful way to advance the employer’s benefit offerings without expanding the potential liability.

How Do Employees Benefit from an HRA?
The HRA plan benefits employees by allowing them to be reimbursed up to a specified amount each year based on the employer’s plan design. Each dollar that goes into the plan is provided by the employer for the purpose of medical expenses, so the benefit is free from federal, state and FICA taxation.

What is the Employee Cost Under the HRA?
For example, under the Bridge Plan, the employee is responsible for a portion of the deductible and out-of-pocket maximum as determined by the employer. For example, the employee may be held responsible for $250.00 toward an annual deductible of $2,500 and $250.00 toward the out-of-pocket maximum, which total $500.00 per insured per year. The HRA will provide funds to cover the remaining amount of the outstanding balance (up to $2,250 towards the deductible and the balance of the OOP) once the insurance company processes the claim. The Comprehensive, Limited and Insurance Only Plans can require the employee pay a certain portion of the expense.

What is an Eligible Expense?
An eligible expense is any medical expense (selected by the employer for inclusion in the HRA) incurred by an employee, spouse or dependent and approved by the IRS for reimbursement. The list of eligible out-of-pocket health expenses is the same as identified for Section 125 Plans (which are Section 213(d) expenses.) In addition to the out-of-pocket medical expenses, the HRA plan can also allow for individual health insurance premiums to be reimbursed, which is not allowed under Flexible Spending Accounts (FSAs.) Please note that expenses reimbursed through the Plan cannot be itemized and resubmitted through an income tax return or any other benefit plan.

Is the Reimbursement the Employee Receives from the HRA taxable as income to the Employer?
No. The HRA follows Internal Revenue Tax Codes 105 and 106. Code 105 states that these reimbursements for health plans are not to be included as income for the employee. The Plan must follow certain guidelines as outlined in the Tax Code. The HRA contributions made by the employer can be deducted as a business expense.

If an Employee Participates in the Flexible Spending Accounts (FSA) also, can the expenses covered under the HRA be used in the FSA as well?
The employee can only claim the un-reimbursed portion of the HRA under their individual FSA. Therefore, the total $500 out of pocket from the previous example will be transferred and processed as a claim under the employee’s FSA, ONLY IF they choose to participate in the FSA. Please review the additional material provided which explains the Flexible Spending Accounts. The HRA is totally separate from an individual Health FSA.

If the HRA Contributions for the Plan Year are not used, can the Money be given to the Individual Employee?
No. The IRS states that any unused amounts not reimbursed in the HRA cannot be returned to the individual employee (it is not considered income to employees.) However, it can be rolled over from year to year to accumulate for the employee. This is an option that is available under plan design, strictly determined by the employer.

Can Employees Contribute to an HRA?
No, employees are not permitted to make any contributions to an HRA under IRS guidelines.

How Does an Employee File a Claim through the Employer’s HRA Plan?
We recommend that the employee present the entire claim to the health insurance provider first so that the claim can be processed based on the insurance plan in force (utilizing agreed contracted amounts with providers, hospitals, etc.) Then, the employee simply uses the HRA Claim Form provided by BMS LLC to file the claim, completing the claim form in its entirety and attach a copy of the Explanation of Benefits statement (EOB) from the insurance provider to the Form. BMS LLC will reimburse the employee based upon the plan design established by the employer.

How are Claims Processed and how do Participants Receive Reimbursement?
Claims are processed daily with payments being issued at least weekly (pending receipt of funding from the employer.) We accept hard copies in the mail, scanned copies via e-mail (to claims@bmsllc.net), or claims can be faxed directly to BMS. If claims are received in the BMS office by Wednesday of each week, claims will be processed on Friday and a check mailed to your home. Mail time typically is one to three days; again pending adequate funding is in the employer’s funding account. BMS also offers the option of direct deposit of the claim reimbursement to the employee’s individual checking or savings account if they are interested.

What are the Benefits of Offering an HRA to Employees?
Answer: Lower premiums. HRAs were designed to provide an avenue for employers to address ever-increasing health insurance cost, while still maintain a competitive benefit package to recruit and retain employees. Again, the employer has many options available to them under the HRA concept, and BMS LLC is here to provide assistance with proper plan design in order to keep costs down and manageable to employers.

Who do I Contact if I have any Questions Regarding my HRA?
You can contact a BMS LLC representative at sales@bmsllc.net directly or 502-244-1161 for additional clarification of your questions. Ask BMS LLC if the Debit Card is available for your HRA Plan Design!