City of Sarasota
1 / 28

Introduction to Health Reimbursement Arrangements “HRAs” - PowerPoint PPT Presentation

  • Uploaded on

City of Sarasota. Introduction to Health Reimbursement Arrangements “HRAs”. Presented by: Mark R. Wilkerson, CFP HRA Consultant December 1, 2004. Topics. HRA Team Growing Need HRA Basics HRA Advantages Eligible Expenses Trust Structures

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about ' Introduction to Health Reimbursement Arrangements “HRAs”' - kay-grant

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

City of Sarasota

Introduction to Health Reimbursement Arrangements “HRAs”

Presented by:

Mark R. Wilkerson, CFP

HRA Consultant

December 1, 2004


HRA Team

Growing Need

HRA Basics

HRA Advantages

Eligible Expenses

Trust Structures

Adoption Implementation and Ongoing Administrative Process

Group Structures & Voting

Contribution Requirements

Employer Funding Sources

Aggressive HRA Plan Designs

VALIC National HRA Plan

Hra service team
HRA Service Team

  • Combining:

    • AIG VALIC - education and enrollment expertise and resources

    • HRA Consultants - HRA experience

    • Rehn & Associates, Inc. - HRA third party administration experience

Aig valic

  • Education Services

  • Enrollment Services

  • Special Pay Plan Companion

Hra consultants a division of vsg
HRA Consultants, a Division of VSG

  • 21 years HRA consulting experience with governmental employers

  • 7 trust clients

  • Single or multiple employer plans

  • 30,000+ participants

  • 400+ employers

  • Custom or turnkey plans

Rehn associates inc
Rehn & Associates, Inc.

  • TPA with more than 40 years experience

  • 11 years HRA experience

  • 30,000+ HRA accounts

  • 400+ HRA participating employers

  • Employer billing services

  • Individual participant services

  • Claims adjudication

  • Account service

  • Statement generation

  • Online participant account access

  • COBRA Administration

  • HIPAA Compliance

Growing need for hras post employment medical funding
Growing Need for HRAs(post-employment medical funding)

The projections listed above are the amounts that a Washington retiree and spouse could spend during their lifetime assuming retirement at age 60, participation in the State of Washington PEBB Uniform Medical Plan, living a normal life expectancy to age 84, assuming purchase of medical insurance and dental insurance for retiree and spouse, plus annual out-of-pocket expenditures of $500 on non-covered items. We assume 5% annual increases for premiums and non-covered out-of-pocket costs.

Current PEBB premiums before age 65 for retiree and spouse are $7,700 per year for medical insurance and $850 per year for dental insurance. Current PEBB Medicare supplement premiums are $3,500 per year for retiree and spouse.

Monthly growth example
MonthlyGrowth Example

What will my account be worth when I retire?

Starting Age

Monthly Employer Contribution

Balance at age 65 w/ 5% return













40 000 cash out without an hra
$40,000 Cash-Out Without an HRA

$40,000 available

25% federal income tax

7.65% FICA tax








Net Cash


40 000 with hra contribution
$40,000 With HRA Contribution

$40,000 benefit available









HRA Balance

Hra basics
HRA Basics

  • Provide reimbursements of medical expenses only

    • In-service and/or post-retirement

  • Employer contributions only (no contribution limits)

  • Reimbursements limited to account balance

    • Carry forward from year to year

  • IRS Notice 2002-45, HRAs

  • Revenue Ruling 2002-41, HRAs

  • Revenue Ruling 2004-45 – Coordinating HSAs, HRAs, & FSAs

Employee participant

  • Advantages

    • Tax-free

      • Contributions

      • Earnings

      • Withdrawals for qualified expenses

    • Excellent resource to pay the rapidly rising cost of post- employment health care

    • List of qualified expenses is quite extensive

    • Portable

    • Unused balances carryover

    • Allocated accounts with ability to self-direct investments

Employee participant cont
Employee/Participant (cont.)

  • Disadvantages

    • Limited to medical only

    • Group contributions and decision process


  • Advantages

    • FICA savings

    • Offer employees new benefit

    • Solution to job-locked employee problem

    • Means of pre-funding retiree health care obligation

    • May choose vesting schedule for post-employment benefits

Employer cont
Employer (cont.)

  • Disadvantages

    • 105(h) non-discrimination rules apply

    • New benefit requires assistance with administration

    • New cost if custom plan used

Who s expenses are eligible
Who’s expenses are eligible?

  • Employee/retiree

  • Spouse

  • Qualified dependents

Qualified insurance premiums
Qualified Insurance Premiums

  • Medical

  • Dental

  • Vision

  • Long-term care (tax-qualified)

  • Medicare Part B

  • Medicare supplements

Qualified expenses
Qualified Expenses

  • Expenses defined in Internal Revenue Code Section 213(d)

  • Medical, dental, and vision expenses not paid by insurance

    • Co-pays, deductibles, co-insurance

    • Prescription and certain over-the-counter drugs (OTC)

    • Crowns

    • Eyeglasses, etc.

Trust structures
Trust Structures

  • Expertise in both 501(c)(9) VEBA and 115 trusts

  • VEBAs

    • VEBA stands for “voluntary employees’ beneficiary association”

    • Rely on 501(c)(9) letter of determination from IRS

    • Stand alone VEBA more expensive to develop and maintain than a multiple employer turnkey plan

    • Multiple employer VEBA subjects employers to non-discrimination violations of other employers

Trust structures cont
Trust Structures (cont.)

  • Individual 115 trusts

    • 115 trust also known as governmental integral part trust

    • No legal approval required for HRA offered within 115 trust

      • Rely on private letter rulings

    • Private letter ruling may optionally be obtained by individual employers

    • Insulates employer from non-discrimination violations of other employers

Adoption implementation and ongoing administrative process
Adoption Implementation and Ongoing Administrative Process

  • Employer Responsibilities

    • CBA or Employer Policy

    • Adopt Adoption Agreement Plan and Trust

    • Contributions

    • Notify TPA of employee eligibility for distributions

    • Instruct TPA of any forfeiture reallocations of unvested accounts

    • Notify TPA of COBRA events

Adoption implementation and ongoing administrative process1
Adoption Implementation and Ongoing Administrative Process

Turnkey Plan – Services Provided

New employee education


Participant service


Account statements


COBRA Compliance

HIPAA Compliance

Audit/Tax forms filed

Contribution requirements
Contribution Requirements

  • Must be employer contributions

  • Collective bargaining or employer policy change can recharacterize compensation from salary to employer HRA contributions

  • All employees defined as eligible must be treated uniformly

  • Must eliminate individual choice of salary vs. HRA contribution

  • More flexibility in collective bargaining groups

Employer funding sources
Employer Funding Sources

  • Sick leave or vacation leave cash-outs (terminal payments)

    • Cash choice must be eliminated

  • Other leave cash-outs

  • Monthly employer contributions

  • Unused monthly benefit dollars

  • Percent of pay (group salary reduction)

    • Through collective bargaining or for post-employment benefits only

  • Other

Group structures voting no individual choice
Group Structures & Voting – No Individual Choice!

  • Collective Bargaining Groups/Non-Represented

    • Termination Payment Contributions

      • Vote each collective bargaining agreement or annually

      • Members “eligible” to retire may vote

      • Can split-percent in cash and percent to HRA

    • Monthly Contributions

      • Percent of pay

      • Flat dollar amount - $100

      • Eligibility may vary by age or pension plan or other criteria – CBA only

Aggressive hra plan designs
Aggressive HRA Plan Designs

  • Medical benefits plus severance, death, and small account cash-outs (disqualifies 105(b) exclusion)

  • Individual election of salary or sick leave (contributions probably subject to income and employment tax withholding)

  • After-tax contributions (probably no exclusion from income on earnings or benefits)

  • Claim account is not an HRA

  • Questions? - Call IRS Office of Chief Counsel Employee Benefits Division: (202)622-6080

Valic national hra plan
VALIC National HRA Plan

  • 115 trust

  • Employer self-trusteed

  • 12 mutual fund options

  • 1 money market fund

  • 5 – 50 BP fund management expense

  • Per participant fee

  • BP administrative fee