Health Reimbursement Arrangement
Health Reimbursement Arrangments, or HRAs, are employer-sponsored benefit plans provided through a person’s place of employment. HRAs are attractive to employees because they are tax-advantaged, meaning that the dollar amount provided from employers to employees per month is tax-free. Once the employees receive their allotted amount, they can use it towards their personal healthcare through the means of their choosing, such as health insurance or out of pocket health expenses.
Health Reimbursement Arrangements offer several benefits for both employees and employers. Here are a few of the top benefits made possible with an HRA:
Tax Benefits: As previously mentioned, HRAs are tax-advantaged. When an employee uses a healthcare service, they can file for reimbursement from their employer. The approved reimbursement amount is usually tax-free, and employers may claim a tax deduction on the amount reimbursed.
List of Qualified Expenses: Providing health insurance for employees can be too large of a financial undertaking for smaller companies. However, an HRA can be a mutually beneficial system that keeps employees and employers satisfied and secure. HRAs outline a list of qualified expenses for tax-free purchases to simplify the process; A few examples can be found here.
Compatibility with Other Health Accounts (FSA): An FSA makes it possible to pay for eligible healthcare services that are not covered under typical healthcare insurance plans. Like HRAs, they offer tax benefits. With an FSA, account holders determine their contribution amount per year, meaning less of their paycheck is spent on taxes. Plus, it is possible to combine an HRA and FSA but keep in mind that no one is able to be reimbursed on the same treatment twice.
Funding from the Employer: HRAs typically have a fixed dollar amount available for healthcare reimbursements. The employer owns, funds, and manages the arrangement so that when an employee requests reimbursement, the approved amount goes directly to the employee.
This year, three new forms of HRAs have been introduced. Now, employers can choose from qualified small employer HRAs (QSEHRAs), individual coverage HRAs (ICHRAs), and excepted benefit HRAs (EBHRAs). ICHRAs and EBHRAs are new to 2020, both of which do not have employer size restrictions. QSEHRAs, on the other hand, have been around since 2016, but are only available to employers that do not provide their employees with group healthcare coverage.
Navigating the realm of HRAs can be tricky, especially with the three new forms that have rolled out in 2020. At LHUI in Seattle, Washington, our team of experts can help you navigate the different types of HRAs so that you can select the one that is right for you and your family. Schedule a consultation with us today!