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What is a Health Reimbursement Arrangement (HRA)?
A Health Reimbursement Arrangement (HRA) is a
tax-advantaged benefit under Section 105 of the IRS code
that allows both employees and employers to save on the
cost of healthcare. An HRA is funded solely by the
employer for the purpose of reimbursing employees for
allowable medical expenses.
an HRA plan, the employer funds individual reimbursement
accounts for their employees. The employer can defines
the schedule of account funding as well as what those
funds can be used for – i.e., specified out-of-pocket
expenses such as deductibles and co-pays.
HRA contributions and administrative costs are tax
deductible to the employer and reimbursements made to
the employee are received tax-free.
Benefits to the Employer
HRAs are becoming increasingly popular as a means to control
the rising cost of health care premiums. HRAs are one
of the most flexible types of employee benefits plans
and may be designed in many fashions to suit the
specific needs of employer and employees alike.
can be independent of a High Deductible Health Plan
(HDHP). However, an employer’s savings may be maximized
by partnering an HRA with an HDHP. HRAs allow an
employer to realize substantial savings by migrating
from first dollar coverage to a High Deductible Health
Plan (HDHP) option without having to increase their
employees’ out-of-pocket exposure. Employers can
purchase high deductible health plan that allows them to
save a significant amount in premium savings. Then the
employer can add and HRA to self-fund all or a portion
of the increased plan deductible in an account for the
employees' making the change cost-neutral or
possibly providing a savings to the benefits budget.
Many employers use the premium dollars saved from a
benefits downgrade to fund the employees’ account
Under an HRA plan, employers may establish what expenses
the funds may be used for; from as comprehensive as all
health-related eligible expenses to as limited as
emergency room expenses only.
The employer can also determine if the HRA funds can be
rolled from year to year and how much rolls over (which
can be either a flat amount or a percentage). At the
employer's discretion, the HRA may be offered alongside
an FSA, providing considerable pre-tax savings to
Because they are very flexible, HRA plans enable
employers to control costs of providing healthcare
benefits while providing a valuable employee benefit
selecting a higher deductible health plan, and
purchasing an HRA, the employer can create savings in
their health programs by implementing a plan employees
enjoy using, and also help the company control costs