As you approach 2018 and may be considering implementing a high deductible health plan (HDHP) with a Health Savings Account (HSA), now is a good time to begin reviewing your existing Health Reimbursement Arrangement (HRA) to ensure it remains HSA compatible. If you currently have an HRA and an HSA arrangement you will also need to review the details of the HRA to ensure that it remains HSA compatible.
Here are some key pointers to ensure a smooth start to the new plan year:
- Stacking Plans Can Increase Tax advantage: Using both HRAs and HSAs together can expand the tax savings for both the employer and the employee.
- Qualifying High Deductible Health Plan (HDHP): In order to qualify as an HSA health plan, the minimum deductible for 2018 will be increasing to $1,350 for Single coverage and $2,700 for Family coverage. The maximum out-of-pocket limits will be increasing in 2018 to $6,650 for Single coverage and $13,300 for Family coverage.
- Disqualifying Coverage Voids HSA Eligibility: Keep in mind that any other coverage that provides first dollar coverage for medical care may be disqualifying coverage that will void an individuals’ eligibility to open or contribute to an HSA and will prevent them from receiving employer contributions to the HSA as well. This includes other group health plan coverage that has a deductible below minimum levels, regular Health Care Flexible Spending Accounts (FSA), and HRAs that reimburse expenses below the minimum required deductible.
- HRA plan designs must meet certain criteria to be HSA compatible: In order to qualify as an HSA compatible HRA, the employee must incur at least the minimum deductible as an out of pocket expense before the HRA can reimburse for medical expenses. If the HRA design fails to meet the required minimum deductibles it will be considered disqualifying coverage and individuals will not be HSA eligible.
- Non-calendar year HRA and Non-calendar year Health Plan
- If the HRA is integrated with the Employer’s own HDHP and they renew on the same date off-calendar year, the IRS supports not treating the HRA as disqualifying coverage unless the lower deductible persists past HDHP renewal.
- HRA should be amended at the first HRA plan year that renews on or after 1/1/18 to reflect the new 2018 minimum required deductible.
- Effective with the start of the HRA plan year in 2018, the first tier of the HRA that is the employee’s responsibility must be equal to or greater than $1,350 Single and $2,700 Family.
- Calendar year HRA and Non-calendar year Health Plan
- If the HRA is integrated with the Employer’s own HDHP, or the HRA has a different renewal date than the HDHP, the HRA will be disqualifying coverage as of 1/1 of the new calendar year to which the new minimum applies unless the HRA is amended to incorporate the new minimum deductible.
- HRA should be amended 1/1/18 to reflect the new 2018 minimum required deductible.
- Effective 1/1/18 the first tier of the HRA that is the employee’s responsibility must be equal to or greater than $1,350 Single and $2,700 Family.
Bottom Line: Making sure your HRA is HSA compatible for 2018 is critical if you plan on maximizing the tax advantages that both the HRA and HSA can offer. Clients and Brokers should contact their Client Service Consultant to complete the necessary paperwork to amend the HRA to ensure their HRA’s remain HSA compatible for 2018.