What Is a Health Reimbursement Arrangement (HRA)?
An HRA offers people tax advantages that allow employers and workers to save money on the cost of medical care. HRA plans are funded by an employer. To fund the plan, an employer earmarks a certain amount of money, in pre-tax dollars, for workers to use to pay for medical care. HRA plans require that they be funded only by the employer (and not by cutting workers’ salaries). Similarly, the plan’s funds may only be used for proven medical expenses. Many companies find such plans to be very attractive benefits to offer their employees. HRAs are also considered attractive offerings for retirees.
Most often, HRAs pair with a High Deductible Health Plan (HDHP). An HDHP cuts the price on premiums and saves the employer money, enabling them to fund an HRA plan. All employer contributions are 100 percent tax deductible for the company and completely tax-free for workers. The employing company may define the terms of its HDHP in any manner it wishes, as the arrangement is flexible.
Workers receive two major benefits under a HRA: money from the employer to pay for medical bills incurred before the deductible is met and a lower premium from the HDHP. Employees may be reimbursed for dental costs, co-insurance, drugs, co-payments, deductibles and other health care expenses. The funds workers receive for their plans are pre-tax dollars. Therefore, workers do not claim a tax deduction for expenses paid back under an HRA plan.
HRA plans can be designed in a number of ways. Some of the more common coverage features include (but are not limited to) deductible coverage, co-insurance coverage, co-pay coverage, comprehensive uninsured medical cost coverage, specific-costs-only coverage, plan year coverage, reimbursement coverage and carry-over coverage. Employees should check what plan design their employer is offering and research how it applies to their situation. There are limitless way to combine HRAs with other programs to get the best advantages.