What are health reimbursement arrangements (HRAs)?

HRAs are employer-owned accounts that are used by employees for specific medical expenses, such as deductibles, copayments, coinsurance, dental or vision. Contributions are made solely by the employer and unused funds are returned to the employer at the end of the plan year or may be rolled over to a subsequent plan year at the employer’s discretion.

Flexibility

HRAs can work in a variety of different ways that provide flexibility for employers. Some variations of an HRA plan include:

  • HRA pays first: HRA provides first dollar coverage for eligible expenses. Employees can use the HRA funds to pay for eligible services that apply to their deductible before they spend out-of-pocket dollars. This HRA variant can also offer a debit card for employees to easily access their HRA funds.
  • Member pays first: This HRA variation requires the employee to have payment responsibility prior to accessing HRA funds. Once the employee responsibility has been met, the HRA funds can be uses for eligible expenses.
  • HRA with incentives or health incentive accounts (HIAs): This HRA option, also called an HIA, allows the employer to offer additional deposits upon the completion of identified incentive activities. Employees can see the rewards as deposits into their account.

No maximum on contributions

The amount available in an HRA is set by the employer. There is no minimum or maximum amount. The employer also gets to decide whether any unused funds roll-over from year to year or whether they expire at the end of the plan period.

Pay-as-you-go system

Employers aren’t required to fully fund a trust in order to offer and HRA to their employees. Instead, funds are expensed when they are reimbursed to the employee.

Deductible contributions

The costs of contributing to HRAs are tax-deductible as business expenses for employers.

HRA disadvantages for employers

The rules and regulations for employers around HRAs can be complex. COBRA requirements have to be properly coordinated are the calculation of premiums are subject to many rules and regulation. In addition to COBRA regulations, ERISA and HIPPA regulations also apply to HRAs.

Health savings accounts are a great alternative to HRAs and have many advantages for both employers and employees.

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