Health Reimbursement Arrangement (HRA) refers to an account that is funded by employers, to help their employees pay for qualified medical expenses. This arrangement covers those expenses which typically would not be included within their heath plans. A few examples of qualified medical expenses include seeking care from a psychologist, costs of transportation to get care, treatment for substance abuse and more. Unlike the typical health plan, HRA’s are employer owned.

Understanding the HRA

Each year, the employer will keep aside some money for their employees to spend on their health. At a specific point in the year, employees will be able to access these funds. In some cases, the amount put aside may be carried forward to the next year if not utilized.

For employees, it is important to communicate that this is not a plan where they can withdraw funds in anticipation of paying a medical expense. They need to have incurred the expense, and then bring the relevant paperwork to make sure they get their money back.

HSA vs. HRA.

At the surface, the HSA and the HRA may seem similar, however, they are quite different. The HSA refers to a Health Saving Arrangement, where the focus is on the employee setting up a personal savings account. With the HRA, the funding comes from contributions given by the employer.

For the employee who may be moving from one employer to the next, they can easily move with their HSA. However, one does not need to worry about making a choice between the HSA and the HRA. In fact, together, they offer the best possible scope of assistance for healthcare, as well as some excellent tax compensation.

Advantages of HRA

For an employer, the health reimbursement arrangement may seem like just another expense. It is worth noting that employers are able to claim a tax deduction on any of the reimbursements that they make through the HRA. Furthermore, all the reimbursements that employees receive are tax free.

In addition, as the employer, it is possible to put stipulations on which expenses will be reimbursed. This lowers the risk of overspending, and also brings down the possibility of fraudulent transactions or claims.

In regard to advantages however, the employee experiences reduced healthcare costs and can cater to out of pocket healthcare expenses. Also, their income is not affected by the HRA.

Points Worth Noting

Some points worth noting are the HRA benefits for employees are not movable. This means that when an employee leaves the company, they will lose the benefit. The employer HRA is not a substitute for health insurance, it simply facilitates employees so that they can get the medical services that they want.

Companies of all sizes can enjoy the advantages of an HRA plan, though, it is an especially good solution for small companies. This is because of the control they allow the employer, especially when it is expensive for them to afford health insurance for the entire group.