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We've updated one of our most popular materials. See what's new in our guide to MERPs.

A Guide to Health Reimbursement Accounts

Implementation Strategies When Creating a Health Reimbursement Account

This section outlines Health Reimbursement Account (HRA) implementation strategies.

How to Implement a Health Reimbursement AccountHealth_reimbursement_account_strategy

There are six steps to consider as you, and employer, implement a Health Reimbursement Account (HRA):

Step 1 - Decide who will administer the HRA (ex: use HRA Software, a third-party administrator, or self-administer).

Step 2 - Set employee eligibility requirements, decide what expenses are eligible for reimbursement, and determine the monthly or annual HRA contribution amounts.

Step 3 - Enroll eligible employees and distribute all required plan documents to each eligible employee.

Step 4 - Employees incur qualified medical expenses and submit proper documentation for reimbursement.

Step 5 - A HIPAA-compliant claims processor reviews the reimbursement request and approves or rejects the request. (Tip: Unlike with an HSA, the IRS requires employees to submit written documentation for all eligible medical expenses before they are reimbursed from the HRA. However, because of HIPAA and other privacy concerns, virtually all companies use a third-party to handle verification of medical expenses and/or reimbursement to employees.)

Step 6 - If the request is approved, the employer reimburses the employee for the approved reimbursement, up to the balance of each employee's HRA.

How to Administer a Health Reimbursement Account

To administer a Health Reimbursement Account (HRA), you need to:

  • Have legal HRA Plan Documents in place, and

  • Have safeguards in place to stay compliant with the IRS, ERISA, HIPAA, and the ACA.

Because of these compliance reasons, and for ease of use and time savings, most businesses use a third party to administer the HRA. Businesses have three main options for HRA administration: a traditional third party administrator ("TPA"), an HRA Software provider, or self-administration.

  1. A Traditional TPA will help a business: set up the HRA, create and distribute HRA plan documents, manage all HRA funds, review claims for reimbursement, keep medical receipts on file, and issue reimbursements to employees. Traditional TPAs require pre-funding of the HRA allowances.

  1. An HRA Software provider helps a business: set up the HRA, create and distribute HRA plans electronically, provide a "quickbooks-like" tracking of HRA funds, review claims for reimbursement, keep medical receipts on file electronically, and notify the employer (through the software) when to reimburse employees via payroll. HRA Software does not require pre-funding of HRA allowances, and is not a fiduciary.

  1. Self-Administration: Technically, a business can self-administer its own HRA, but failure to comply with the minimum HRA federal administration requirements is common without utilizing proper HRA Software or a TPA. Businesses that self-administer are frequently out of compliance with IRS, ERISA, HIPAA, COBRA, and ACA regulations, and businesses can face costly fines for being out of compliance. And, if a business puts into place all of the safeguards needed for compliance, the administrative cost likely outweighs the benefits of the HRA.

In the next section, we’ll cover more about HRA Administration Software.

The Comprehensive Guide to the Small Business HRA