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Health Reimbursement Arrangement

Young woman sitting on sofa reading health reimbursement arrangement letter.

A Health Reimbursement Arrangement (HRA) is also known as a Health Reimbursement Account. It is an employer-funded, IRS-approved, tax-advantaged health benefit plan, as well as a great method by which to provide health insurance benefits to employees. An HRA allows employees to pay for a variety of medical expenses not covered by health insurance.

How Health Reimbursement Arrangements Work

Not to be confused with health insurance, an HRA reimburses employees for individual health insurance premiums and out-of-pocket medical expenses. To provide a reimbursement, the employer makes contributions to the employee’s account. Health Reimbursement Arrangements are notional, which means that the employer reimburses employees directly only after they incur eligible medical expenses.

There are limits on how much employers can contribute to certain HRAs. For a Small Business HRA, annual employer contributions have a cap for each employee. The cap may be different for employees who are single compared to employees with families.

Eligible expenses in a Health Reimbursement Arrangement are all qualified medical expenses under Section 213 of the Internal Revenue Code, including personal health insurance premiums. However, employers may restrict reimbursable expenses under their own HRA plan, within IRS guidelines.

HRA Benefits to Employers

HRAs are often provided in conjunction with high-deductible health insurance plans that have lower premiums, which saves an employer money. In addition, all employer contributions to HRAs are 100% tax-deductible for the employer and tax-free for the employee.

Health Reimbursement Arrangements are flexible plans that allow employers to provide valuable employee benefits while controlling costs. Contact an agent at Associated Insurance Management in Danville, Pennsylvania, to discuss an HRA plan for your company.

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