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In this section we present you with short newsletters containing
timely and useful information. |
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IRS Approves New Self-Directed Medical Plan. |
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The IRS has approved an important new self-directed medical benefit
plan that both employers and employees should know about. |
In late June, 2002, the IRS approved an important new form of
self-directed medical benefit plan - the Health Reimbursement
Arrangement or HRA. The distinguishing feature of an HRA is a
carryover rule that allows employer contributions, not used
currently by the employee for whom they are contributed, to be
carried forward in an accumulation account and used in some future
year. The employer contribution amount is established before the
first day of a tax year, must be made on a non-discriminatory basis,
and is not subject to an arbitrary limitation. The employer
determines how much to contribute.
With an HRA, your employees can have more choice and greater control
in health care decisions. You can use an HRA to reduce projected
double-digit increases in health care costs by encouraging your
employees to be careful shoppers. Traditional flexible spending
arrangements are maintained with employee salary reduction
contributions, and have a "use it or lose it" rule. HRAs are used
only to reimburse qualified medical care expenses of employees,
former employees, retirees, or dependents of any of those, and are
funded entirely by employer contributions -- not with salary
reductions or similar elective arrangements.
A qualifying HRA can reimburse up to the maximum available in an
employee's account in the plan for any period, and unused amounts
carry over to later periods to increase the maximum amount available
then. Unused amounts accumulated over several years could be
available to pay post retirement medical expenses.
The IRS guidance grants great flexibility to employers in plan
design. HRA plans can be used to supplement other plans in a
coordinated offering of health care benefits. For example, an HRA
cannot be funded through salary reduction arrangements, but benefits
can be coordinated with cafeteria plans to maximize tax-free and
pre-tax benefits from a combination of employer and employee
contributions. Because the plans are not subject to an annual
maximum contribution limit, it will be possible to fund fairly high
levels of HRA benefits.
We have studied the IRS guidance on this new way of providing
flexible medical benefits and can help you evaluate how an HRA may
fit into your benefit package.
Contact Us to arrange an
appointment for a detailed explanation of this new form of benefit
plan.
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