Health Reimbursement Arrangement (HRA)
The health reimbursement arrangement is a federally-approved program which allows an employer to reimburse employees for a portion of their medical expenses, typically by covering part of their deductible. You can fund these reimbursements using the premium gained in switching from an expensive, low deductible plan to an economical, high deductible plan.
HRA Advantages for Employers
- Reimbursements are tax deductible.
- You do not need to pre-fund an account. Reimbursements may be made from your business' general account.
- HRA's are available to any size group.
- If you pre-fund, you can retain ownership of the funds. If the employee terminates, the funds remain with you.
- You have great flexibility in HRA plan designs. You determine:
- The maximum amount of annual reimbursement. There is no pre-set government limit.
- Who pays deductible expenses first - you through your HRA reimbursements or the employees.
- Whether funds can be carried over to the next year, and if so, the amount that can be rolled.
- The timetable for making your contributions, if you choose to pre-fund.
- Whether to place a cap on the amount that can be accumulated over time, and if so, the amount of the cap.
- The number of HRA plans to offer - you can have different plan designs for different classes of employees subject to nondiscrimination rules.
- The flexibility allows for greater control of cash flow.
HRA Advantages for Employees
- An HRA is entirely employer funded.
- An HRA can be designed to provide first-dollar benefits.
- Unused funds may be carried over year to year, depending on plan design.
- Employees can be reimbursed for a wide range of qualified medical expenses - including dental, vision, and in some circumstances, even employee portions of medical premiums.