I knew that there was a new tax on
self-insured medical plans. I was surprised that it reached health reimbursement
arrangements (HRA), though.
I was surprised because it makes little
sense, other than as a raw money grab. Next time perhaps the government will
just select names at random from a phone book and require them to send money. I
suggest they start with the District of Columbia phone book.
Have you heard of a health
reimbursement arrangements? We are wading into alphabet soup-land, so let’s take a
moment to compare and contrast an HRA with a health savings account (HSA).
If your employer is large enough, you
may receive an annual letter laying out your health insurance options. Perhaps
you can select from standard reimbursement, HMO, preferred provider or
high-deductible health plans. That high-deductible plan likely is an HSA.
The concept of an HSA is simple:
combine a high-deductible health policy with a medical IRA. If one incurs routine
medical costs, one is reimbursed from the IRA. If one does not, then the IRA
continues to compound and accumulate. The policy is there for big expenses. For
a healthy family the medical IRA can add-up to tens of thousands of dollars.
A health reimbursement arrangement (HRA)
is a different animal. A key difference is that an HRA is all
employer money. The HRA can reimburse employees for medical expenses, including
vision, dental and chiropractic. It can reimburse on a first-dollar basis, a
deductible-first basis, a sandwich basis and any other basis the plan advisor
can dream up. It can have an annual cap … or not. Chances it will have an
annual cap, as otherwise the employer borders on being financially reckless.
The employee doesn’t own this money,
by the way. Should an employee quit, the money reverts to the employer. In
truth, many if not most HRAs do not have any money at all. The medical bills
are paid directly from company funds when presented for reimbursement. There
may be an accounting somewhere that shows every employee and how many dollars are
in his/her “account,” but this is for bookkeeping purposes only. The term for
this is “notional,” and it means make-believe. Think unicorns, fairies and the
New York Jets having a NFL-caliber quarterback.
ObamaCare (technically, The
Affordable Care Act) is imposing a new fee on self-funded plans, which includes
HRAs. It is coming up fast. If you have an HRA whose most current plan year
ended after September 30, 2012 and before July 31, 2013 (that is, virtually
every HRA), the HRA will have to pay a $1 fee per participant. Next year the
fee goes to $2, and thereafter it goes to who-knows-what because some government
bureaucrat will decide the amount.
The tax is due by the end of this month
– July 31.
This tax will be reportable on Form
720, which may be a new filing for many employers.
It also has to be paid
electronically. There is no attaching a check for this one.
I am a big fan of HRAs, as it allows
companies to add to their employee benefits package without bankrupting
themselves in the process. The HRA can cover deductibles, pay for braces or
help with medical expenses that otherwise fall through the cracks left by the
main insurance policy. HRAs have gotten more expensive, however, both by the
per-participant fee as well as by the tax practitioner’s fee to prepare the return.
