BASE^® Blog

The number of Health Reimbursement Arrangements (HRAs) available to employers have grown in the past years.  With all the options available, how does a business choose the right one?

In this week’s blog, we will discuss the HRA options, how they work, and what type of business might benefit the most. 

Health Reimbursement Arrangements (HRAs) are IRS-approved tax savings plans that reimburse employees for out-of-pocket health care expenses, and in some cases, health insurance premiums.  All reimbursements are 100% deductible as a business expense to employers and considered nontaxable income to employees. 

The Section 105 Health Reimbursement Arrangement allows small business owners to deduct up-to 100% of insurance premiums and qualified out-of-pocket health care expenses as a business expense. 

With the Section 105 HRA, the employer calls BASE® to enroll in the HRA, hires their spouse in the business as a legitimate employee, and has the spouse enroll in the benefits package.  The Section 105 HRA can help reduce the high costs of qualified health care expenses and pay for eligible out-of-pocket health care expenses.  When a qualified health care expense is incurred, the expense is reimbursed. 

The Section 105 HRA is best for businesses that are self-employed and can legitimately hire their spouse.  Also, businesses that classify as sole proprietors, partnerships, or C or S corporations. 

The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) allows small employers, who do not provide a group health plan, to reimburse employees for qualified health insurance premiums and/or health care expenses. 

With the QSEHRA, the employer calls BASE® to enroll, decides which qualified expenses will be considered eligible reimbursements, and sets the monthly benefit allowance to offer each employee.  The employer can set allowance caps, giving control over the health care costs.  Once enrolled, the employee purchases their health insurance on or off the Marketplace or pays for their out-of-pocket health care expenses.  After an expense is paid for, the employee will submit proof, it is substantiated, and adjudicated, the employee is reimbursed up to their allowance. 

The QSEHRA is best for businesses that do not offer a group health plan and have less than 50 full-time employees who maintain minimum essential coverage (MEC). 

The Individual Coverage Health Reimbursement Arrangement (ICHRA) allows employers to reimburse employees for qualified insurance premiums or insurance premiums and non-insured health care expenses, with the ability to choose to offer to all employees, or to a specific class, with no contribution caps. 

With the ICHRA, the employer calls BASE® to enroll, decides which qualified expenses will be considered eligible reimbursements, separates the employees out by class, and sets the employee monthly benefit allowance to offer each employee in their class.  Once enrolled, the employee incurs a qualified expense.  After an expense is paid for, the employee will submit proof, it is substantiated, and adjudicated, the employee is reimbursed up to their allowance. 

The ICHRA is best for businesses of any size that want to separate their employees by classes, providing a set allowance for those specific classes.  This plan would also be good for an employer looking to save money by not providing a traditional group health plan to any or all employees.

The Integrated Health Reimbursement Arrangement allows employers to couple their high deductible health plan with the HRA, lowering the cost of premiums while keeping the employees’ coverage the same.   

With the Integrated HRA, the employer calls BASE® to enroll and sets the monthly benefit allowance to offer each employee.  When a qualified expense has occurred, the employee submits proof of expense.  With no prefunding necessary, reimbursements are only made when a qualifying expense is adjudicated.  Once the expense has been substantiated, and adjudicated, the employee is reimbursed. 

The Integrated HRA is best for businesses that want to provide a traditional group health plan, but still offer an allowance to offset the out-of-pocket costs and save money on the group health plan premiums by offering a higher deductible plan.  The Integrated HRA can be designed to reduce the overall cost of the insured plan by allowing employers to self-insure a portion of the deductible. 

With so many options available, employers have the freedom to choose what works best for their business and employees.  To learn more about the different HRAs available, call BASE® at 888.386.9690 or visit the www.BASEonline.com.

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In December 2020 and on April 27, 2021, the IRS released two information letters that reiterated the substantiation rules for FSA debit card programs.  One letter (Notice 2021-0003) responded to an inquiry on behalf of a participant whose card was deactivated for failure to provide requested documentation to substantiate expenses paid with an FSA debit card.  The other letter (Notice 2021-0013) responded to a request for information about the substantiation rules for FSA debit card transactions. 

The letters explain that health care expenses must be substantiated with the information describing the health care product or service, the date of the service or sale, and the amount of the expense.  With the help of administrators, such as BASE®, review of additional information can be avoided with real-time substantiation. However, not all transactions have the information that is required to satisfy the substantiation requirements, so the plan administrator must request additional information and must deactivate the card if the health care expense is not substantiated in a timely fashion. 

The review of the missing information can be avoided if the third party provided the information at the time of service, or point of sale, to verify the charge was for a health care expense – real-time substantiation.  This could be through a Merchant Category Code (MCC) as well as the actual item or service identified by an Inventory Information Approval System (IIAS). 

The letters also noted that FSAs may be designed to impose stricter standards and suggest contacting the employer/plan administrator about other options for submitting claims directly with required documentation. 

There are a few things not mentioned in the letter.  

• The debit card program rules also allow for automatic substantiation of card transactions at medical providers and 90% pharmacies (locations at which 90% of prior year gross receipts consisted of eligible medical expenses) where the dollar amount of the transaction equals an exact multiple of not more than five times the dollar amount of the copay under the participant’s health plan.
• Automatic substantiation is also allowed at merchants that have an inventory information approval system (IIAS) in place to ensure that cards are only used for qualified health care expenses.

With the IRS FSA substantiation rules, the bottom line is not all debit card receipts provide all the required information.  The substantiation from a third-party must include the proper information, listed above or the card will be deactivated and will be so until the proper information is provided, and the claim is substantiated. 

For more information, please call BASE® at 888.386.9680 or visit www.BASEonline.com. 

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