What is a Health Reimbursement Arrangement?
A Health Reimbursement Arrangement, or HRA, is a pre-tax benefit that can be offered by employers to help pay for their employees’ out of pocket medical costs. HRAs are funded entirely by the employer; there is no contribution made by the employee. The benefit of the HRA is that the employer and the employee do not have to pay taxes on the funds reimbursed from the plan for eligible expenses.
HRAs are governed by IRS Code Section 105. Since they fall under this section of the code they are considered group health plans and are required to comply with many aspects of healthcare reform. One of the main components is that the HRA must be integrated with a group health plan in order to satisfy the prohibition on annual limits. Stand alone HRAs can be offered in limited circumstances including retiree only, limited purpose (dental and vision expenses only), or Qualified Small Employer HRA (QSEHRA).
While HRAs are fairly straightforward as far as the basic concept, they can vary greatly in actual plan design. The employer has the flexibility to choose if the plan will reimburse all eligible expenses as outlined by the IRS, or limit the eligible expenses to a specific type of expense, such as medical deductibles. The funds can be available at the start of the plan year, or contributed throughout the plan year based on a schedule set by the employer. Also, there is no limit set by the IRS on the amount that can be contributed to the HRA by the employer.
HRAs can work with many benefit combinations and are another option available to employers as they look to provide a comprehensive benefit package for employees.
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.