(Defined Contribution HRA 105 and Section 125)

Employer funded (EF) HRA125 is a popular method to help employers control the cost of their health insurance plan while providing choice to employees.  Under EF HRA125 employers do not have the responsibility of a “employer sponsored group health insurance plan”. They instead have defined amount (contribution/allowance) of money for each employee to pay for certain health care expenses including health insurance premiums. The employee would be allowed to take the defined amount of “tax free” dollars given to them to purchase any type of health insurance from the health provider of their choice. An advantage to the EF HRA125 program is the ease of administration; in many cases it is reduced to no more than 15 minutes a month.

There are two options allowed under this “reimbursable arrangement”. Both options are set up through your current payroll-based administration.  One is under a Health Reimbursement Arrangement HRA 105 (EF HRA) and the other under a Section 125 (EF125).  EF HRA is a web based program that gives an employer total control of the dollars available to the employee while EF125 gives the employee the option to use dollars available towards a Health Savings Account (HSA) which they own.  Any dollars in a Health Savings Account when an employee leaves employment goes with them. Below are the two options, but first let’s give you the advantages of having an individual versus a group health insurance policy:

Individual Health Insurance

  • Individual and family insurance is permanent.  You can never be dropped due to medical conditions or over utilization of coverage.
  • Premiums do not increase due to medical conditions. Rates increase for inflation not for specific individual situations.
  • Cost of plans generally run 30% to 40% less than group insurance plans.
  • Those with chronic conditions have both federal and state guaranteed-issue personal policies available.

Employer Funded Health Reimbursement Arrangements

Features of an EF HRA

  • HRA funds are tax deductible to the employer
  • HRA funds are tax free to the employee
  • Employer has flexibility to determine what is allowable under the EF HRA program: insurance, medical, Rx, dental, vision, etc.
  • Unused funds can roll-over at the employer’s discretion
  • There is no pre-funding requirement – an HRA is a pay as you go plan

The Advantages of an EF HRA

  • Implementation of an HRA with a higher deductible health plan will help reduce costs
  • Provides employee choice
  • Creates awareness of the cost of health care
  • Helps to control utilization
  • Provides the employer with a long term health care plan strategy

If you are interested in the EF HRA program and want to see how you can offer real benefits without the cost or complications of a group plan.   Just think, you could set up a benefit plan on line in less than 30 minutes for your employees!

For Overview of how an EF HRA works, Click Here.

Click here for more information on the EF HRA Program (ZaneHRA).

Employer Funded Section 125

All the same features and advantages of the EF HRA with the difference being that EF 125 allows contributory dollars from the employer to be used in any way in accordance with IRS guidelines for medical expense reimbursement.   Employers control the amount of dollars given, but do not have say in what the employee spends the dollars on. Employees can use the dollars towards Health Savings Accounts (HSA) and keep the dollars saved like a 401(k) or IRA plan.

If you are interested in the EF 125 program and want to know more on how you can offer real benefits without the cost or complications of a group sponsored health plan please contact us.