HRA – Health Reimbursement Account

• HRA- Health Reimbursement Account are Notional-no funds are expensed until reimbursements are paid. Through health reimbursement arrangements, employers reimburse employees directly only after the employees incur approved medical expenses.

• HRA have no annual limits – Unlike a Health Savings Account (HSA), there is no limit to the amount of money an employer can contribute to an employee’s health reimbursement arrangement.

• HRA Eligible Expenses-A health reimbursement arrangement may reimburse any expense considered to be a qualified medical expense under IRS Section 213 of the Code, including premiums for personal health insurance policies. Within IRS guidelines, employers may restrict the list of reimbursable expenses in any way they choose.

• HRA Allow Annual Rollover – A health reimbursement arrangement may reimburse any expense considered to be a qualified medical expense under IRS Section 213 of the Code, including premiums for personal health insurance policies. Within IRS guidelines, employers may restrict the list of reimbursable expenses in any way they choose

• HRA Administration & Reporting – Reporting features make real-time monitoring of health reimbursement arrangement liabilities, reimbursements and utilization easy. Employers can change plan benefits at any time or cancel the entire plan at any time. Further, health reimbursement arrangements allow employers to establish plan-year maximum reimbursements for any given category of expense (e.g., dental) and to establish a maximum balance that any participant class may hold at a time.

Benefits to the Employer

HRAs are most commonly offered in conjunction with a High Deductible Health Plan. As a rule, moving to a High Deductible Health Plan will result in reduced premium costs, which creates real savings on healthcare costs for the employer. HRA contributions may then be funded using the savings gained from the lower premium costs. By funding an HRA, the employer effectively bridges the gap between the higher deductible and the expenditure amount at which the insurance coverage “kicks in” for their employees.

Most importantly, all employer contributions to the plan are 100% tax deductible to the employer, and tax-free to the employee.

Employers may establish what expenses the HRA funds may be used for; from as comprehensive as all health-related eligible expenses to as limited as emergency room expenses only. Because they are very flexible, HRA plans enable employers to control costs of providing healthcare benefits while providing a valuable employee benefit.

With an HRA, employee healthcare expenditures are visible and clear to employer and employee alike, thereby fostering a greater understanding of the costs of healthcare. In addition, employees who can monitor and control their healthcare costs become smarter healthcare consumers.

Studies show that only 20-50% of employees actually use their healthcare coverage, meaning employers often pay health insurance premiums for employees who are not utilizing the coverage. An HRA allows employers to determine the best type of coverage for their employees based on the demographics of their employee group.

HRA plans may also cover retired employees (and their spouses and tax dependents). Employers may wish to consider an HRA as an alternative to more expensive traditional retiree healthcare.

Employee benefits, like an HRA, enable employers to recruit and retain quality employees. With an HRA in place, the employer is perceived in a positive light by current and prospective employees because a benefits package is being provided with the employee’s interest in mind.

Benefits to the Employee

Enrolling in an HRA provides two major advantages to employees: (1) a reduced health insurance premium resulting from the High Deductible Health Plan, and (2) availability of employer-sponsored funds to pay for medical expenses incurred prior to point at which the insurance deductible is met.

Depending on the plan design, expenses that may be reimbursed from the HRA include the following: deductibles, co-payments, co-insurance, prescription medications, vision expenses, dental expenses, and other out-of-pocket health-related expenses.

HRA funds are contributed to employees on a pre-tax basis; therefore, the funds are not taxable to the employee. As such, employees need not claim an income tax deduction for an expense that has been reimbursed under the HRA.