HRA: Three letters That Might Help With Health Expenses

It hasn’t been much noticed, but employers will be able to help their workers afford health expenses to a greater degree beginning next year.

 Remember the Health Reimbursement Arrangement, or “HRA”? It allowed employers to provide pre-tax dollars for their workers to pay health insurance premiums and out-of-pocket medical expenses. It has a history that dates back to 1954.

The HRA pretty much disappeared when “Obamacare” (Affordable Care Act) arrived. It survived on the books only in limited fashion.

Now the HRA has reappeared in its former glory! Employers large or small can offer it. Their employees also have fewer constraints. The Internal Revenue Service just released the new rules governing the HRA accounts in June.

As a result, business and non-profit agencies can assist their workers in buying insurance pretty much without limit, beginning on Jan. 1, 2020. In effect, that means for the 2020 tax year.

 Of course, it still is up to those employers to decide whether to offer HRA benefits in the first place. Here’s one important carrot for them. There are no ceilings on the amount of HRA money they can provide pre-tax to workers. 

The new rules also broaden use of HRA benefits. For example, individual workers and their families can use their HRA dollars for coverage through the “marketplace” insurance exchanges created under Obamacare. That wasn’t possible from the beginning of Obamacare until this revision appeared.

Eric Buehler, who is an IRS-approved enrolled agent, sees advantages to the newly revised Health Reimbursement Arrangements.  “I think this will really help individuals and small business,” says Eric, owner of EricJohn Ltd.

 But, let’s add a caution here. For some individuals, tapping an employer-provided HRA also could reduce or eliminate premium tax credits connected to coverage under the exchanges.

Employers also can run into complications when combining HRAs with other payroll plans, such as a Health Savings Accounts. Among them, companies must decide between a group health plan and HRA; they can’t offer both at the same time to any single work group within the firm.

Feel free to contact Eric at EricJohn Ltd., whether you’re a small business interested in offering an HRA or an employee who might benefit from your company’s HRA plan.

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