Only the employer can fund the HRA; there are no employee contributions. You also can't finance the benefit through employee payroll deductions. Any funds you don't use at the end of the plan year will remain in your possession. Employers are also left with unused allowances if an employee quits or retires.
So are health insurance reimbursement plans taxable? Generally speaking, no. HRAs are employer-sponsored plans that reimburse employees for qualified medical expenses, and the IRS considers these refunds to be an additional tax-free benefit. Even so, employer reimbursement of health insurance premiums varies, so it's important for business owners to know how this could affect their tax situation. Originally, under the initial guidance of the Internal Revenue Service (“IRS”), HRAs could be offered in combination with the employer's group health plan or as a stand-alone HRA.
Usually, an employer offered a separate HRA if it didn't also offer a group health plan, and used the HRA to reimburse employees for the independent purchase of insurance (including individual market coverage). The ability to maintain a truly independent HRA has been limited by legislation (as explained below); however, more recent rules and IRS guidelines have since established some ways in which employers can offer HRAs separately and in addition to a group health plan. In addition to having their health insurance premiums reimbursed, they can also request reimbursement for other eligible health care expenses, resulting in savings additional. For years, small businesses that didn't offer health insurance used to reimburse employees for individual plan premiums, which were often referred to as non-taxable benefits.
While you can't directly pay for your staff's health insurance and medical costs, don't worry. The annual period (November 1 to January 1) when people can enroll in a Marketplace health insurance plan. The GHP HRA must be available to all employees (and their spouses or dependents) who are enrolled in the employer's group health plan; it cannot be offered to any employee who is not enrolled in the group health plan. A qualified HRA for small employers allows small employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance or for tax-free medical expenses.
This means that employees who are eligible to participate in an employer's traditional group health plan can participate in EBHRA; however, EBHRA coverage is not limited to employees enrolled in the health plan (such as a GHP HRA). The HRA, or medical expense reimbursement agreement, allows employers to reimburse employees for health insurance without the fines and charges mentioned above. Employers felt that it was cheaper and had fewer administrative burdens compared to offering a group health insurance plan. With a separate HRA, employers can reimburse employees for the costs of their insurance premiums instead of buying them health plan coverage.
He has observed several business insurance structuring scenarios, including the intricate ways in which employers manage health insurance. While it may seem like a generous and attractive benefit for employees, employers should consider several factors before deciding to pay for individual health insurance plans. An HRA is an employer-sponsored health benefit that allows employees to receive tax-free reimbursements for health insurance premiums and other qualified out-of-pocket medical expenses. The main problem was the interpretation that any company that reimbursed health insurance (including individual insurance) was technically a group plan. Instead of offering an expensive group health plan, one tactic they might consider is offering employees to pay for individual health insurance costs.
