Author Topic: Retiree-only HRA?  (Read 948 times)

rubybeth

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Retiree-only HRA?
« on: October 25, 2017, 07:57:53 AM »
Does anyone have knowledge or experience regarding retiree-only Health Reimbursement Arrangements (HRAs)? Due to some changes to our benefits plan at work, we'll no longer be able to use our 'benefit credit' exactly how we want to. Instead of having a traditional "take it or leave it" benefits package, we are given a set dollar amount per month to elect benefits. This amount is commonly known as our 'benefit credit,' and we were previously given options to spend it in various ways. But changes are coming for 2018, and we're basically given two options:

1) Use $500 of our 'benefit credit' toward employer health insurance monthly premium
2) If not taking employer health insurance, minimum of $500 per month goes into a retiree-only HRA

There's not a lot of information about the HRA so far, other than it's just money that stays with the employer, no investment options or interest earned. Basically it would $6,000 untaxed per year that we can't touch until we leave the employer, and it won't grow.

I'm concerned about the lack of growth, but I am also not sure I want to pay $500 per month for health insurance (vs. getting it cheaper via my state's exchange or possibly my husband's employer). The employer insurance options are pretty high-cost since we are such a small group. I can get coverage in the marketplace for around half of the employer coverage cost (after tax, of course).

So basically it boils down to: would it be better to pay $250/month after taxes for my own health insurance and take the $500 in the HRA each month that will just sit until I leave employment, or take the high cost employer insurance (pre-tax)?

MDM

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Re: Retiree-only HRA?
« Reply #1 on: October 25, 2017, 11:43:32 AM »
Let's say you have $12K pre-tax that you will use either to
- pay insurance premiums (either pre-tax of after tax, depending on your choice), or
- invest (either pre-tax or after tax, depending on your situation)

You also have the $500/mo from the employer that will either go to
- the pre-tax insurance premium, or
- the HRA account.

What gives you a higher spendable (i.e., after paying appropriate tax on any pre-tax funds) balance at the end of the year?

rubybeth

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Re: Retiree-only HRA?
« Reply #2 on: October 25, 2017, 12:33:42 PM »
Let's say you have $12K pre-tax that you will use either to
- pay insurance premiums (either pre-tax of after tax, depending on your choice), or
- invest (either pre-tax or after tax, depending on your situation)

You also have the $500/mo from the employer that will either go to
- the pre-tax insurance premium, or
- the HRA account.

What gives you a higher spendable (i.e., after paying appropriate tax on any pre-tax funds) balance at the end of the year?

The higher spendable balance? Well, taking the $500 insurance from the employer would leave me with with more income since I wouldn't be paying for insurance after taxes. But I'd be spending $500 on insurance coverage when I could get a similar plan on the marketplace for around $250.  Yes, I'd pay tax on the $250 insurance coverage, but I'd have the $500 in the HRA. Am I understanding your question?

MDM

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Re: Retiree-only HRA?
« Reply #3 on: October 25, 2017, 07:39:51 PM »
The higher spendable balance? Well, taking the $500 insurance from the employer would leave me with with more income since I wouldn't be paying for insurance after taxes. But I'd be spending $500 on insurance coverage when I could get a similar plan on the marketplace for around $250.  Yes, I'd pay tax on the $250 insurance coverage, but I'd have the $500 in the HRA. Am I understanding your question?
Would the $500 cover the full cost of the employer's insurance?  The OP had "...toward employer health insurance" so I read that as you still having to pay some amount.

Assuming you either get "free health insurance now" or "pay $3K/yr after tax ($4K/yr pre-tax if paying 25% marginal) and get $6K/yr put into an HRA (from which you can draw tax-free for medical expenses after retirement, correct?)," it seems the HRA route is favorable.  If your marginal rate is ~50% (possible for high earners in a high tax state), it's less clear.

rubybeth

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Re: Retiree-only HRA?
« Reply #4 on: October 26, 2017, 07:42:16 AM »
The higher spendable balance? Well, taking the $500 insurance from the employer would leave me with with more income since I wouldn't be paying for insurance after taxes. But I'd be spending $500 on insurance coverage when I could get a similar plan on the marketplace for around $250.  Yes, I'd pay tax on the $250 insurance coverage, but I'd have the $500 in the HRA. Am I understanding your question?
Would the $500 cover the full cost of the employer's insurance?  The OP had "...toward employer health insurance" so I read that as you still having to pay some amount.

Assuming you either get "free health insurance now" or "pay $3K/yr after tax ($4K/yr pre-tax if paying 25% marginal) and get $6K/yr put into an HRA (from which you can draw tax-free for medical expenses after retirement, correct?)," it seems the HRA route is favorable.  If your marginal rate is ~50% (possible for high earners in a high tax state), it's less clear.

Oh, gotcha. I don't have all the details yet, but yes, the $500 would be around the full cost of the plan. My employer doesn't subsidize the cost in the traditional way of most employers. Instead, we get this benefit credit, and can use it toward the cost of health insurance or other things. There's usually a lower cost plan and higher cost plan, and I'd go with the lower cost one, presumably that would be the $500 per month for the full cost. Marginal tax rate is low. So I am thinking you are right--better to pay less for insurance, even if it's after tax, and take the $500/month in the HRA, even if it doesn't grow.

Edited to add: the full cost is for single coverage for employee only.
« Last Edit: October 26, 2017, 07:53:41 AM by rubybeth »