Get the most out of an HRA

Health reimbursement arrangements (HRAs) are a great way to offer benefits within a budget, but did you know that this benefit can be provided to retirees? With an HRA for retirees, participants use employer funds to help pay for health expenses incurred during retirement.

What is an HRA for retirees?

An HRA for retirees, otherwise known as a Post-Employment Benefit, is a tax-advantaged spending account fully funded by the employer. HRAs for retirees allow retired employees to use the funds allocated to their account to pay for health expenses during retirement, such as medical care, prescription drugs, and many health insurance premiums. Essentially, this product allows retirees to use their HRA dollars when and where they need it most.

Plan design flexibility

Similar to the EBC HRA, employers have the ultimate flexibility to design their HRA for retirees. Employers design the plan by choosing the plan eligibility requirements, which health expenses are eligible, and how long participants have access to these funds.

Employers also decide how to calculate the amount of employer-funded HRA dollars that retirees receive. Employers can choose to provide a flat dollar amount, allow a spenddown of HRA dollars accumulated during employment, and/or convert unused PTO time to HRA dollars. This plan design flexibility allows employers to create a benefit plan that best suits their organization’s needs and encourages employment longevity. See how this works in the example below.

 

Benefit Scenario: The employer is looking to decrease the operational costs associated with their high turnover rate. They are looking for a benefit that they can design and that encourages employment longevity past their typical 2 year turnover.

Selected Plan Design: The employer designs an HRA for retirees who are 55 years old and have worked at the company for at least 10 years. Once retirees meet these two requirements, the employer provides them with a lump sum of $20,000 that they can use towards their health insurance premiums.

HRAs for retirees are a valuable benefit for participants, but there are regulatory considerations that you don’t want to overlook. In particular, do not fall into the trap of thinking COBRA doesn’t apply when an HRA for retirees is offered! An employer offering an HRA for retirees needs to decide if the HRA is offered as an alternative or as a complement to COBRA coverage under its major medical plan, and comply accordingly with COBRA requirements.

Setting up for success

At Employee Benefits Corporation, we provide our clients with the support needed to create a plan design that best fits each organization. Contact us for more information on how we can help design a Post-Employment Benefit HRA for retirees that is right for your organization and how we can assist with COBRA compliance.