How are HRAs different from FSAs and HSAs?
With so many options available for employee benefits, what sets health reimbursement arrangements (HRAs) apart from the rest of the pre-tax reimbursement accounts?
1. HRAs provide employers the ability to specify exactly what expenses the plan will reimburse.
HRAs are funded entirely with employer contributions. HRAs can reimburse all eligible expenses as allowed by the IRS or if an employer wants to provide a benefit to pay for a specific expense such as medical deductibles, they can design the plan to only reimburse this type of expense. Flexible Spending Accounts (FSAs) can also be limited to specific expenses, however it is not common for these plans to be restricted. Health Savings Accounts (HSAs) can be used to pay for any eligible expense as allowed by the IRS and cannot be restricted to a specific expense type.
2. The employer determines when the funds will be contributed to the account.
HRAs provide the flexibility of deciding when the funds will be contributed to the account. Employers can choose to fund the account with the full amount at the start of the plan year, or select another cycle. Common increments include monthly, quarterly and per pay. FSA annual elections must be available at the start of the plan year due to the uniform coverage rule.
3. The amount contributed to the plan is determined by the employer.
There are no annual maximums established by the IRS for HRAs. Each employer determines the annual amount they will contribute to the plan. This can range from a few hundred dollars to several thousand dollars, based on the employer’s preference. Both FSAs and HSAs are limited to the annual contribution amount determined by the IRS.
4. Unused funds can roll to the next plan year or be forfeit.
HRAs can be designed to allow any unused funds to roll forward to the next plan year. The employer can determine how much will roll forward each year. The plan can also be designed so any unused funds are forfeit back to the employer at the end of the plan year. FSAs can also allow for rollover, but the rollover amount is limited to $500 and any unused funds over that amount are forfeit.
These are just some of the components that set HRAs apart from other pre-tax benefits and spending accounts. Employers who want to make a contribution to a spending account and want the flexibility to design a plan that is right for their employees will want to take a very close look at HRAs to see how these plans can help strengthen their overall benefits package.
BusinessPlans, Inc. – myCafeteriaPlan does not intend to provide legal or tax advice and information contained in this article should not be interpreted as such. Regulations governing pretax plans are often open to interpretation and should be reviewed with your legal or tax advisor before making any decisions regarding your plan.