Frequently Asked Questions about HRAs

What does the IRS say?
The BASE® HRA is based on several sections of the Internal Revenue Code, including Sections 105, 106, 162, 213, and Revenue Ruling 71-588. In 1994, the IRS issued a National Office Technical Advice Memorandum regarding this plan. In 1999, the IRS Industry Specialization Program offered a coordinated issue paper regarding Section 105. The latest information released by the IRS was Revenue Ruling 2002-41, Notice 2002-45, and Revenue Ruling 2003-102.

Most recently, in 2013, the IRS issued Notice 2013-54 in response to certain provisions of the Affordable Care Act. This information provided guidance in regards to the treatment of health insurance premiums in an HRA depending on the way a business is structured.

Why haven't I heard of this type of plan before?
Section 105 of the Internal Revenue Code was written in 1954 in an attempt by the government to encourage small businesses to provide benefits to their employees. With health care costs on the rise in recent years, the HRA has become more widely utilized. With the tremendous amount of savings this plan offers, thousands of small businesses across the United States have adopted it in an attempt to combat the rising costs of health care.

How do my clients coordinate this benefit with their tax professional?
The BASE® Benefit Specialists work very closely with tax professionals (and their clients) to bring the BASE® HRA to those who qualify. Most tax professionals rely on third-party expense administrators, like BASE®, to properly establish and maintain an HRA for their clients.

Can my client do this on their own?
Legally, any individual could administer an HRA for their business. However, your client still needs to be familiar with hundreds of pages of tax code and supply all the legal documentation required by the Internal Revenue Service, Department of Labor, and the Employee Retirement Income Security Act, as well as complying with the Affordable Care Act. . They must also carefully adhere to state insurance regulations and have a third-party adjudicate annual medical expenses.

Do my clients need to offer this plan to their employees?
The BASE® HRA must be offered to employees who meet the Department of Labor eligibility criteria. In most cases, full-time employees who are 25 years (or older) must be included in the plan. Please contact a BASE® Benefit Specialist for full details about employee requirements.

Are medical expenses incurred prior to establishing a BASE® HRA eligible for reimbursement?
Medical expenses (including health insurance premiums) incurred prior to enrollment in an HRA are not eligible for reimbursement. Only those expenses incurred after your client establishes a plan can be included. BASE® allows reimbursement of expenses to begin on the first day of the month of enrollment. For example, if your client enrolls in the BASE® HRA on June 15, then only expenses incurred on or after June 1, of that same year are eligible for reimbursement. The IRS reiterated this position in a document published in March 1999 titled "Retroactivity". The IRS also issued Revenue Ruling 2002-58 to address issues caused by some plans that were still out of compliance.

*The Affordable Care Act may not allow the reimbursement of health insurance premiums based on your business size and plan design. For additional details, please contact a BASE® Benefit Specialist.