Health Reimbursement Arrangement (HRA)

Question 1

HRA

Answer 1

an employer funded plan that reimburses covered employees for specified medical expenses

Question 2

are employee contributions allowed?

Answer 2

NO

Question 3

When is it used? (3)

Answer 3

1. substitute health insurance
2. supplement to provide payments for medical expenses NOT covered under company’s insruance plan
3. to pay for medical expenses in excess of a company’s plan limits

Question 4

When is it indicated? (3)

Answer 4

1. Closely-held corporations with family members as shareholders
2. only employee is a high income professional or few other employees
3. when employer wants to provide medical benefits beyond those already provided

Question 5

HRA dollars must be expended ____ FSA monies can be used

Answer 5

before

Question 6

Can HRA funds be rolled over from year to year?

Answer 6

yes

Question 7

Can reimbursements cross years?

Answer 7

yes

Question 8

Who does an HRA remain with?

Answer 8

Originating employer, even if employee leaves

Question 9

The plan must be adopted by a corporation resolution that specifies: (3)

Answer 9

1. the group of employees covered
2. types of medical expenses that will be reimbursed
3. any limits or conditions of payment by the company

Question 10

What does any employer reimburse employee for?

Answer 10

claims covered under plan

Question 11

Benefits are tax free to employees if: (3)

Answer 11

1. medical expenses qualify under IRC 213
2. they reimburse the employee for health insurance and long-term care insurance premiums
3. the plan is nondiscriminatroy

Question 12

Can the plan be fully funded or insured?

Answer 12

both

Question 13

An employer may deduct 100% of: (3)

Answer 13

1. cost of covered medical benefits paid to its employees under plan
2. plan’s admin expenses
3. cost of the employer’s stop loss insurance coverage

Question 14

Annual deductions for pre-funding medical benefits are limited to the sum of…

Answer 14

total direct costs of the plan for the year, admin costs, and contribtions to an asset account up to 35% of the preceeding year’s direct costs

Question 15

HRA benefits to employees are tax-free unless….

Answer 15

considered discriminatory

Question 16

What happens if HRA is considered discriminatroy?

Answer 16

only HCE’s will recongnize pro-rata benefits as ordinary income

Question 17

What does the employee do with any medical expenses that are NOT covered by an HRA?

Answer 17

use as itemized expense

Question 18

What are the 2 nondiscrimination tests?

Answer 18

plan coverage and benefits

Question 19

Plan coverage must….

Answer 19

• benefit 70% or more of all employees
• if at least 70% eligible, must benefit 80% or more
  OR
  -must benefit a classification of employees, established by the employer, that does not dicsriminate in favor of HCEs

Question 20

Benefit test

Answer 20

all benefits provided for HCEs under plan must be provided to all plan participants

Question 21

Who can be excluded from the coverage tests? (5)

Answer 21

1. employees who have not complete at least 3 years of service
2. employees under age 25
3. part-time or seasonal employees
4. employees in a collective bargaining unit
5. nonresident alien employees who received no US income

Question 22

Is an HRA subject to ERISA?

Answer 22

yes