Understanding the alphabet soup of retirement planning

By elitecpas | June 10, 2015 |

You’ve heard that Obamacare has prevented the small business owner from offering a tax-free reimbursement to his employees for their health insurance. This is technically correct; however, there is a way (although much more expensive and paperwork-intensive than before) to offer a tax-free reimbursement of a number of medical costs (including insurance) incurred by employees. It now requires third-party administration and the setup of an HSA, HRA, HRP, or FSA plan.

We know that sounded like an alphabet soup of acronyms, but (in the right business situation) there can be some significant savings to be had by dipping into the soup bowl of tax-advantaged health benefit plans.

This area is so complex that it’s beyond the scope of a single post, but you can get a foothold in understanding the basic plans available for you and your employees. The chart below is a basic primer of who’s responsible for what with some of these options.

This is one area that is not a DIY project. The plans below represent some tangible ways that you can show appreciation for your team members, but it has to be set up and maintained correctly.

If you have an interest,use the button below to contact us.

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HSA vs. HRA vs. HRP vs. FSA Comparison Chart

What are the available plans?

Health Savings Account (HSA)

Health Reimbursement Arrangement (HRA)

Healthcare Reimbursement Plan (HRP)

Health Flexible Spending Account (FSA)

Description

HSAs are individual bank accounts owned by
employees that allow for tax-free payment or reimbursement of eligible
medical expenses.

An employer usually offers an HSA- qualified high-
deductible health plan and an HSA.

HRAs are employer- funded, tax advantaged employer
health benefit plans used to reimburse employees for eligible medical
expenses.

With an “Integrated HRA,”
the HRA is paired with a high- deductible health
insurance plan to reimburse employees for their deductible expenses.

With a “Stand-alone HRA,”
the HRA is a total-replacement ABHP and is used
to reimburse employees for eligible individual health insurance
premiums and medical expenses.

As of 2014, however, health
reform has placed limitations on the use of Stand-alone HRAs for most
employers. Types of stand-alone HRAs that are compliant
under health reform include Retiree HRAs and One-

Person Plans.

HRPs are employer- funded, tax advantaged employer
health benefit plans used to reimburse eligible employees for
individual health insurance premiums and preventive care.

HRPs are specifically designed to comply with new
Affordable Care Act rules and regulations.

HRPs are a type of total-replacement ABHPs. This
type of approach is also referred to as a
premium reimbursement plan.

Health FSAs are employer- established benefit
plans that allow for tax-free reimbursement of qualified medical
expenses.

Legal Authority

Medicare Prescription Drug, Improvement, &
Modernization Act of

2003, and supplemental guidance from the IRS.

IRS Guidance 2002-

45 and IRS Code

Section 105.

IRS Code Section

105.

IRS Code Section

125.

What is the cost?

	Health Savings Account (HSA)	Health Reimbursement Arrangement (HRA)	Healthcare Reimbursement Plan (HRP)	Health Flexible Spending Account (FSA)
Who May Contribute	Employer, employee, or third party.	Employer only.	Employer only.	Employee and employer.
Cost of Employer Contributions	100% paid regardless of utilization.	Only pay for employee utilization (typically 25-50%).	Only pay for employee utilization (typically 25-50%).	100% paid regardless of utilization.
Maximum Annual Contribution	$3,350 / single * $6,650 / family * *2015	Determined by employer; no statutory limit.	Determined by employer; no statutory limit.	Determined by employer, capped at $2,500 per employee (2014), with annual inflation increases.
Tax Treatment	Tax-free.	Tax-free.	Tax-free.	Tax-free.
Eligibility Requirements	Must have HSA- qualified high- deductible health plan ($1,300+ single / $2,600+ family deductible in 2015).	All employees and former employees as determined by employer, not self- employed.	All employees and former employees as determined by employer, not self- employed.	All employees, not self-employed.
Purchase of Health Insurance Plan Required?	Yes. Purchase of HSA- qualified high deductible health plan required.	No. Employer can require participation in company group health insurance plan to be eligible for the HRA.	No. Employer can require proof of health insurance to be eligible for the HRP.	No.
Medical Expenses Allowed	Unreimbursed medical care expenses as defined by IRC 213(d), and insurance premiums for unemployed individuals. No employer limitations.	Unreimbursed medical care expenses as defined by IRC 213(d); including health insurance premiums. Employer can limit categories of IRS- approved expenses. Eligible expenses outlined in Plan Documents.	Unreimbursed medical care expenses as defined by IRC 213(d); including health insurance premiums. To comply with the Affordable Care Act, HRPs are designed to only allow reimbursement of eligible health insurance premiums and basic preventive services.	Unreimbursed medical care expenses as defined by IRC 213(d); no health insurance premiums.

How do I maintain the plan?

	Health Savings Account (HSA)	Health Reimbursement Arrangement (HRA)	Healthcare Reimbursement Plan (HRP)	Health Flexible Spending Account (FSA)
Funds Carried Over to Next Year?	Yes.	Determined by the employer.	No.	Determined by the employer; $500 maximum.
Administrator	Employee.	Employer or third party administrator (TPA).	Employer or third party administrator (TPA).	Employer or third party administrator (TPA).
Portable After Termination	Yes. Continued access to unused account balance if employee is no longer working for the employer. Withdrawals for non- medical purposes are subject to income tax and a 20% penalty tax. Once account holder reaches age 65 (Medicare eligibility age), becomes disabled, or dies, withdrawals for non- medical purposes are subject to income tax only, with no penalty.	Determined by the employer.	Determined by the employer.	No. Account cannot be maintained if the employee is no longer working for the employer.

Posted in For Business and tagged hra, HSA, medical reimbursement