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Health reimbursement arrangements (HRAs), also known as consumer-driven health plans, are becoming increasingly popular as employers seek ways to control health care costs and consumers demand more control over their personal health care. This is a “rare occurrence where there is a confluence of market demand and positive regulatory guidance,” said Scott Macey, Senior Vice President of Aon Consulting, referring to the IRS’s guidance on HRAs issued in July. Macey, along with Richard Asensio, a consultant for Aon, recently shed some light on HRAs during a teleweb seminar sponsored by the International Foundation of Employee Benefit Plans (IFEBP). WHAT SHOULD BE IN AN HRA PLAN? Macey explained that there are four typical HRA components. First, HRAs are part of a high deductible health insurance plan. Such plans may vary in features, limits and co-insurance amounts. Second, a separate book account is established in the employee’s name. The employer allocates a specific dollar amount to the account, and the account is under the complete control of the employee for the purpose of paying health care expenses. Third, the employee expense portion represents the gap between the HRA balance and the deductible amount under the health plan. Finally, there should be extensive use of the Internet and telephone to enhance employees’ ability to choose providers and take charge of their own health care. Macey stressed that HRAs should be designed as close as possible to the “safe harbor” provisions provided in the IRS guidance to avoid the drastic consequences of prohibited payments. Asensio explained that an improperly designed HRA will result in the taxation of distributions made, including those for valid medical care expenses. Examples of improper designs include:

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