A previous column discussed how an employee or an annuitant qualifies to own and to contribute to a health savings account (HSA). The most important qualification for contributing to a HSA is for an employee or annuitant to be enrolled in a high deductible health plan (HDHP).
Even though some employees or annuitants are enrolled in a HDHP, they are not eligible to have and to contribute to a HSA. In that case, these individuals will be given a health reimbursement arrangement (HRA). This column discusses HRAs, and in particular how a federal employee or an annuitant qualifies for a HRA and the benefits associated with having a HRA.
A HRA is not a bank or investment account (like a HSA) but rather a virtual fund that receives an automatic premium-pass-through (called “credits”) from an employee’s/annuitant’s Federal Employees Health Benefits (FEHB) program-sponsored HDHP. An employee/annuitant chooses to participate in the coming plan year in a HDHP but is not eligible to contribute to a HSA. For example, an annuitant is over age 65 and has enrolled in Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance) thus making the annuitant ineligible to contribute to a HSA. The annuitant will then be given a HRA. Features of a HRA include:
∙ FEHB program sponsored HDHP transfers funds (‘credits”) to the HRA on an annual basis in January
· Tax-free HRA withdrawals to be reimburse the employee/annuitant for qualified medical expenses
· Carryover of unused HRA credits in the same HDHP without limit from year to year
· An individual can have a HRA while being enrolled in Medicare or a health care flexible spending account
· Credits in a HRA do not earn interest
· Administered entirely by the FEHB program health plan (HDHP)
· Credits in an HRA are forfeited if the employee or annuitant switches health insurance plans or leaves federal service other than to retire
· Employees and annuitants cannot make voluntary contributions to the HRA – only the FEHB health insurance plan makes contributions through the premium-pass-through
The following table summarizes the differences between HSAs and HRAs for employees and annuitants when they consider what type of FEHB health insurance plan they want to enroll in for the year 2020:
FEHB Program HSA Versus HRA Comparison for 2020
In summary, the following are nine HRA rules under the FEHB program:
1. Employees need to enroll in a HDHP as offered through the FEHB program.
2. Once enrolled in a HRA, the employee does not own the account. The FEHB program HDHP owns the account.
3. Only the FEHP program HDHP funds the employee’s or annuitant’s HRA through premium-pass-through (“credits”).
4. HRA credits rollover from one year to the next year assuming the employee or annuitant remains insured in the same HDHP.
5. HRA funds do not earn interest or dividends.
6. HRAs can reimburse the HRA participant and family members’ qualified medical expenses as listed in IRS Publication 502 (Medical and Dental Expenses).
7. Employees enrolled in an HRA can also be enrolled in a health care FSA; annuitants enrolled in an HRA can be enrolled in Medicare.
8. HRA money can be used to pay for family medical expenses, assuming the family member is a tax dependent of the HRA enrollee.
9. Unused HRA money stays with the FEHB program HDHP.