Section I: Introduction to BASE®

Chapter 4: Where do the savings come from?

With BASE® certification, you will have the knowledge necessary to deliver health care savings to your clients!


Take Quiz #4

With the BASE® HRA, not only are your clients able to deduct up-to 100% of the family's out-of-pocket medical expenses as a business expense, but in most cases, the HRA will also allow deductibility of health insurance premiums* resulting in a federal, state (if applicable) and self-employment tax savings.

All medical expenses are adjudicated at year's end to ensure deductibility as required by law and under IRS Code § 213d. Clients also receive all necessary paperwork to support the deduction on their business tax return as required by the IRS, the Department of Labor, and ERISA.

Below, you will see a more detailed breakdown of eligible reimbursements through an HRA.

BASE® HRA with 1 Employee Participant

  • Health Insurance Premiums can be reimbursed (caution OR, ID, TX and RI). However, if the client obtains coverage through the Federal or State Exchange/Marketplace these premiums are not eligible, and this is regardless of whether or not a subsidy is obtained
  • Supplemental Premiums that qualify as indemnity policies
  • Dental Premiums, Vision Premiums, Long Term Care Insurance Premiums, Medicare Premiums
  • All other 213(d) medical expenses
  • Plan must have a benefit limit (plan maximum)

BASE® HRA with 2 or More Employee Participants

  • Health Insurance Premiums are not eligible, and this includes Medicare
  • Supplemental Premiums that qualify as indemnity policies
  • Dental Premiums, Vision Premiums, Long Term Care Insurance Premiums
  • All Section 213(d) medical expenses
  • Plan must not have a benefit limit (no plan maximum)

The best candidate for the BASE® HRA is a sole proprietor who is married, whose spouse helps out in the business, and who has no additional employees. In this type of situation, a business owner must hire his or her spouse as an employee of the business. Through the BASE® HRA, the business owner would then reimburse their spousal employee for all family medical expenses, including health insurance premiums. This includes medical expenses that cover the employee, the business owner, and their dependents. Because the business owner has adopted the HRA, the family medical expenses reimbursed to the employee are now considered a business expense and are fully deductible. In addition, the spousal employee receives the medical reimbursements as a tax-free benefit.

Typically small businesses only take the standard deduction on Form 1040. However, when business owners enroll in a Section 105 BASE® HRA, they can deduct both their health insurance premiums* and qualified out-of-pocket expenses on their business tax return. This increased savings results in an average tax savings of more than $4,500 per year. That's $375 per month of new-found cash you can put in their hands!

*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.