Health Reimbursement Arrangement

Understanding Health Reimbursement Arrangement

Health Reimbursement Arrangement plans conveniently combine the best aspects of Flexible Spending Accounts (FSA's) and Medical Savings Accounts (MSA's).

This employer-funded and sponsored program provides the employer with a way to give their employees freedom of choice in healthcare planning while controlling costs.

How an HRA Works

By designing your insurance plan to help reduce premiums you can use the HRA to reimburse employees for specified out-of-pocket costs, including deductibles or co-pays. The dollars contributed to the HRA are usually offset by a reduction in premiums due to some cost shifting to the employee. Expenses include:

  • Health insurance deductibles
  • Co-insurance amounts
  • Dental/Orthodontic fees
  • Eyeglasses, including the exam fee
  • Hospital bills
  • Insulin and diabetic supplies
  • Mileage for medical care
  • Obstetrical expenses

HRA Advantages for the Employer

HRA's provide the maximum flexibility and cost control for employers in a defined contribution program. HRA's allow the employer to offer a high deductible insurance plan and contribute the premium savings to the HRA for future employee medical care insurance premium expenses on a pretax basis. They also allow employer contributions to be 100% tax deductible and are not subject to federal, state, or social security taxes. The employer can define who can participate, employer contribution amount, payment frequency, and expenses covered. They do not require that employers advance claims payment, therefore reducing employer risk, and are available to employers of all sizes. HRA plan designs are very flexible.

HRA Advantages for the Employee

HRA's provide an employee with funds contributed by the employer to use for medical expenses and any unused dollars may be rolled-over into the next year (employer option). They may allow the employee to accumulate money for future medical needs, such as retirement healthcare expenses. HRA's may also provide money for COBRA premiums.

Requirements of the HRA

The employer must have an updated Plan Document on-site. Benefit Advantage will assist in developing a personalized plan design and will maintain all updates for the Plan Document. The IRS prohibits certain owners and their immediate family members from participating in a HRA. These include:

  • More than 2% shareholders in a Subchapter S, and their spouses, parents, children, and grandchildren.
  • Partners in partnership including LLP's and LLC's that operate under partnership rules (spouses and dependents are eligible).
  • Sole proprietors (spouses and dependents are eligible).

* Note: While owners may not participate, employees may participate