A Health Reimbursement Arrangement (HRA), also known as a Health Reimbursement Account, refers to a tax-advantaged benefit that enables both the employers and employees to save on healthcare costs. These plans are employer-funded and involve the employer setting aside a set amount of tax-exempt money for its employees to pay for annual healthcare expenses.
In this blog, we discuss how the HRA works and how it benefits both employers and employees.
How the HRA Works
HRAs are notional arrangements which mean that funds are not expensed until the reimbursements have been paid. Through the HRA, businesses reimburse employees only after incurring the medical expense. Such a feature is beneficial for a business that wishes to retain control over its cash flows. Although HRA’s differ, the following are procedures common to all:
- Businesses determine the amount of tax-free money they wish to offer employees each month.
- Employees then purchase healthcare services and products that best suit their needs.
- Employees provide documentation proof of any HRA-qualified expenses they have incurred.
- The employers review the documentation for three things: the amount incurred, the date of the service, and the product or service itself.
- The employers then proceed to reimburse the employees after approval. Once it does so, it won’t make any more payments until the next month.
Things that can be Reimbursed with an HRA
An HRA reimburses any expense that qualifies as a legitimate medical expense under IRS Section 213(d) and includes premiums for health insurance policies. Since an HRA can be used to reimburse both premiums and medical expenses, it proves very valuable for employees. Common expense items that qualify for an HRA include:
- Prescription drugs
- Non-prescription drugs
- Travel cost to the healthcare provider
- Office Visits
- Vision or dental premiums
- Health Insurance premiums
Items available for reimbursement may differ according to the HRA as well as the employer who can choose to remove certain items from the eligibility criteria.
Is there an Annual Limit to HRAs?
Yes, similar to a health saving account, there’s a limit to the amount of money employers can contribute to an HRA. However, for stand-alone or group coverage HRAs, there are no limits to the amount of contributions businesses can make.
Health Reimbursement Arrangements enable businesses to control their costs and offer customized benefits to their employees at the same time. JS Benefits Group offers employee benefits services in Pennsylvania to businesses seeking to maximize profitability while offering the best incentive packages. Contact us today for more information.