Health reimbursement account

Health Reimbursement Account (HRA), also known as a Health Reimbursement Arrangement, is a type of health insurance plan that reimburses employees for qualified medical expenses. It is an employer-funded plan that allows employees to be reimbursed tax-free for out-of-pocket medical expenses and sometimes to pay for health insurance plan premiums. HRAs are designed to give employees more flexibility and choice in managing their health care costs.

Overview

HRAs are initiated by the employer and serve as a benefit to employees to cover healthcare expenses, up to a maximum dollar amount for a coverage period. This arrangement is not considered health insurance but rather a health benefit plan. The employer funds and owns the account, distinguishing it from a Health Savings Account (HSA), which is employee-owned. Unused amounts in the HRA can be rolled over to the next year at the employer's discretion.

Eligibility and Contributions

To be eligible for an HRA, an individual must be an employee of a company that offers an HRA. There are no specific eligibility criteria set by law for employees; however, employers can set their own eligibility criteria. Contributions to an HRA are made solely by the employer, and the amount contributed is not considered taxable income to the employee.

Qualified Expenses

Qualified medical expenses are those specified in the plan that the HRA covers, which can include deductibles, copayments, and other health-related expenses not covered by the employee's health insurance plan. The Internal Revenue Service (IRS) provides a broad definition of qualified medical expenses, but employers can restrict the types of expenses their HRA will reimburse.

Types of HRAs

There are several types of HRAs, including:

• Integrated HRAs: Designed to work with a high-deductible health plan (HDHP), where the HRA only reimburses after the deductible is met.
• Standalone HRAs: Offered without a tied health insurance plan, used primarily before the Affordable Care Act's regulations.
• Qualified Small Employer HRAs (QSEHRAs): For employers with fewer than 50 full-time employees, allowing them to reimburse employees for health insurance premiums and other qualified medical expenses.
• Individual Coverage HRAs (ICHRAs): Allow employers of any size to reimburse employees for their health insurance premiums purchased in the individual market.

Benefits and Limitations

The primary benefit of an HRA is the flexibility it offers employees in managing their healthcare expenses. It also benefits employers by providing a tax-efficient way to offer health benefits. However, the limitations include the employer's control over the rollover policy and the types of covered expenses, which can vary significantly between different HRAs.

Regulation

HRAs are subject to various federal laws and regulations, including the Affordable Care Act (ACA), the Health Insurance Portability and Accountability Act (HIPAA), and IRS guidelines. These regulations dictate how HRAs can be structured, what expenses can be reimbursed, and how benefits are reported for tax purposes.

Conclusion

Health Reimbursement Accounts offer a flexible option for employers to provide health benefits to their employees. By covering a range of out-of-pocket medical expenses and sometimes premiums, HRAs can help make healthcare more affordable for employees. However, the specifics of each HRA can vary widely, making it important for both employers and employees to understand the details of their particular plan.