MedFund HRA (IRS Section 105)

A MedFund HRA account is funded by the employer and is used to pay for certain healthcare-related expenses. The reimbursements are not taxable to the employee and are tax deductible for the employer. The most common use of an HRA is in combination with a higher deductible health plan. The employer benefits from lower premium cost, but the higher deductible cost to the employee is cushioned with HRA dollars.
Generally, a MedFund Plan will pay many of the same expenses as the MedFlex FSA plan, however, unlike the MedFlex plan, only employers may contribute to an HRA. HRAs allow employers to move to defined contribution funding of healthcare expenses.
With MedFund, the employer keeps track of the available funds and no dollars are actually spent until a claim is filed by an employee and approved by Workable Solutions. Reimbursements from the HRA are not taxed to the employee, and are deductible by the employer. Unused funds may be rolled over from year-to-year depending on the plan design.
Eligible Expenses include insurance co-payments, plan deductibles, direct payment for annual physicals and medical exams, dental and/or vision expenses, mental health, chiropractic services and prescription drugs. If an over-the counter drug is medically necessary, like allergy medications or pain relievers, they may also be paid by an HRA. Because an HRA is an employer funded plan, the plan can be designed to limit what is covered.
The most common use of a MedFund HRA is in combination with a higher deductible health plan. The employer benefits from lower premium cost, but the higher deductible cost to the employee is cushioned with HRA dollars.
An HRA also may be used to fund long term care premiums and may be offered along with an FSA or HSA, with restrictions.

Who Can Sponsor a MedFund Plan?

Plan sponsors can include C-corporations, partnerships, S-corporations, limited liability companies (LLCs), sole proprietors, professional corporations, and not-for-profits.
Regulations prohibit individuals owning more than 2% of an S-corporation, sole proprietors, partners or members of an LLC (in most cases) from participating in the HRA plan, they may still sponsor a plan and benefit from the cost savings.

What happens to money contributed to an HRA?

Once your MedFund HRA is set-up, it reimburses participants for eligible expenses. MedFund includes a DirectPay Benefits Card™ which can be used to make qualified purchases. Like an FSA, documentation is required. Unlike an FSA, there is also no requirement that the total annual contribution be made immediately available to the employee. The employer can make a portion of funds available each pay period or make periodic lump sum contributions.
Your MedFund plan may also be designed for specific purposes.
Example 1: A bridge HRA would be offered alongside a high-deductible health insurance plan. The HRA might pay all or a portion of the deductible items covered by the plan.
Example 2: A limited HRA would be offered in conjunction with an HSA Solutions plan and would pay only for specific allowable expenses such as vision, dental or specific disease coverage.

Key HRA Requirements

  • The plan must have a written plan document and each employee must be given a copy of the summary plan description (SPD).
  • The plan may not discriminate in favor of highly compensated employees.
  • HRAs have a lot of plan design flexibility. For example, unused balances may or may not roll over to the next year. They may also be restricted to cover only certain benefits, like prescription drugs, or co-payment and deductible expenses. An HRA established in conjunction with a health savings account might be limited only to dental and vision.
  • An HRA may utilize a delayed payment feature, which means employees do not have to file a claim within the plan year grace period. However, they do have to have been covered by the HRA when the eligible expense was incurred and still participate when the claim is filed.
  • Since there is no employee account, an HRA may not be cashed out when the plan ends or an employee retires or leaves the company.

Employer HRA plans that have 100 more participants are normally required to file a Form 5500 with the federal government each year.