Health Reimbursement Arrangements

David W. Clark, CPA, and Darlene Pulliam, PhD, CPA

The IRS’s ruling in Private Letter Ruling (PLR) 201528004 affords employers several key benefits that should be considered when establishing a retiree health reimbursement arrangement (HRA). Employers can alleviate some of their administrative burden in managing retiree health benefits while generating payroll tax savings on the accumulated unused leave time of retiring employees. Retirees are afforded a broader choice of insurance products, including marketplace options under the Patient Protection and Affordable Care Act (ACA), while minimizing the impact on their retirement savings when paying for postemployment health-care expenditures. Finally, employers are better able to control costs by shifting their focus on funding defined amounts into an HRA plan versus managing the inflationary uncertainties of the health insurance market.