What is a Health Reimbursement Account and How Does it Work?

What is a Health Reimbursement Account and How Does it Work?

As healthcare costs continue to rise, employees are seeking innovative ways to manage healthcare expenses. One such approach is the Health Reimbursement Account (HRA). An HRA is an employer-funded account that reimburses employees for certain healthcare expenses. In this article, we will explore the basics of HRAs, how they work, and why they are becoming increasingly popular.

What is an HRA?

An HRA is an employer-funded health benefit plan that reimburses employees for eligible medical expenses. Employers establish HRAs to help their employees manage healthcare costs by making tax-free contributions to an HRA account.

How Does an HRA Work?

An HRA is a tax-advantaged account that employers establish for their employees. Employers fund the accounts with pre-tax dollars, which are used to reimburse employees for eligible medical expenses. Eligible expenses include out-of-pocket expenses such as deductibles, copayments, and coinsurance for medical services, prescription drugs, and medical supplies.

Employees must have a high-deductible health plan (HDHP) to qualify for an HRA. The HRA may be designed to reimburse all or a portion of the remaining out-of-pocket expenses after the HDHP is satisfied. Employees can use the funds as needed to pay for eligible expenses.

The HRA may have rollover provisions, allowing unused funds to be carried forward to future years. The HRA is part of the employer’s health benefits package and is not transferrable to another employer.

Types of HRAs

The most common types of HRAs are the Integrated HRA and the Stand-Alone HRA.

Integrated HRA: An integrated HRA is a health reimbursement account that is integrated with a health plan that meets the Affordable Care Act’s minimum essential coverage requirements. The employer funds the account, and employees use the funds to pay for qualified medical expenses.

Stand-Alone HRA: A stand-alone HRA is a health reimbursement account not integrated with a group health plan. The employer funds the account, and employees use the funds to pay for qualified medical expenses.

Benefits of an HRA

HRAs offer several advantages to employers and employees.

For employers, HRAs provide a flexible way to manage healthcare costs. They can tailor the HRA to meet the specific needs of their employees, and they can control costs by setting limits on the amount of funds allocated to each employee.

For employees, HRAs provide a way to manage healthcare costs and make more informed healthcare decisions. They can use the funds to pay for eligible expenses tax-free, which reduces their out-of-pocket costs.

Conclusion

HRAs are a popular way for employers to offer a flexible, tax-advantaged benefit that helps employees manage their healthcare costs. With healthcare costs on the rise, HRAs offer an innovative solution that benefits both employers and employees. Employers should consider the advantages of offering an HRA as part of their benefits package.