What is a Health Reimbursement Arrangement (HRA)?
A Health Reimbursement Arrangement or HRA is a type of Medical Reimbursement Plan or MRP that allows the employer to contribute tax-free dollars to a designated employee account or accounts. These accounts are for employee reimbursement of out-of-pocket medical expenses (including insurance premiums and deductibles). Eligible medical expenses are approved and reimbursed either by the employer or a third party administrator.
What are the advantages of an HRA?
- Employees are not taxed on the value of their HRA coverage or on reimbursements they receive from the HRA.
- An HRA is funded as claims are filed. An HRA is funded as ER contributions are made. Reimbursements are made as claims are filed and funds are available
- HRA’s may allow unused funds to be carried over to subsequent years.
- HRA’s are not subject to HSA rules thus allowing greater flexibility in the plan design of the high deductible health plan.
What are some examples of an HRA?
A Health Reimbursement Arrangement or HRA can have virtually an infinite number of plan design options. However, the three most fundamental options include the following:
First Dollar HRA: This plan reimburses expenses from the first dollar up to the accumulated balance in the HRA account. The employee pays the remaining expenses up to the amount of the health insurance plan deductible.
The Bridge HRA: This plan pays for eligible expenses after the employee pays an initial amount established by the employer.
Shared HRA: The Shared HRA shares the cost of covered expenses subject to the health insurance plan deductible.
Additionally, plans can be designed with a combination of these three plans giving the employer significant flexibility to design a plan that is appropriate for their workforce.