Health Reimbursement Arrangement (HRA) - How These Plans Work
The health reimbursement arrangement, or health reimbursement account (HRA), is a truly effective way for an employer to offer special healthcare benefits while permitting an employee to still control their own medical care. The question is, what exactly are these plans? Let’s take a look at how the health reimbursement arrangement works, HRA eligible expenses, and various types.
What Is An HRA?
A health reimbursement arrangement is an employer-funded plan that reimburses employees for out-of-pocket medical costs. The employer sets the parameters, rules, and guidelines for these accounts. In general, the employer is not restricted by any minimum or maximum contribution limit for the account.
An HRA is considered a notional account, which means that funds are only spent after actual costs have occurred, and employees must pay bills first. This is different from a cafeteria plan, in the sense that contributions cannot be made out of the employee’s salary.
How Your Health Reimbursement Arrangement Works
Group healthcare plans might not be attractive to the most coveted executives. On the other hand, health reimbursement accounts can be customized to their needs. The following are some of the most important advantages of the health reimbursement account:
- Employer control
- Employee choice
- Tax benefits
These arrangements are flexible and easy to customize, and even allow employers to establish a ceiling for healthcare expenditures. Employers retain unused dollars, which is a more efficient allocation of capital. Employees also benefit by maintaining control of their medical care, and employers can also have their FICA and FUTA taxes reduced.
HRA reimbursements can be deducted as a business expense. Employees use pre-tax dollars as opposed to after-tax dollars. These plans can be customized to very specific needs for executive recruitment and retention.
HRA Eligible Expenses
Internal Revenue Service (IRS) Publication 502 declares which HRA eligible expenses are acceptable and which are not. The list includes hundreds of categories. The following is just a sample of common medical expenses that are reimbursable:
- Blood tests
- COBRA premiums
- Diagnostic Fees
- Hospital bills
- Lab tests
- Physical therapy
- Prescription drugs
Employees, spouses, or dependents might have HRA eligible expenses. These expenses must be substantiated and proven. The following expenses are not eligible for reimbursement, according to the Internal Revenue Service:
- Athletic club membership
- Bottled water
- Burial expenses
- Domestic help
- Maternity clothes
- Stop smoking
- Weight loss
Physical therapy is eligible, but athletic club membership is not. Furthermore, the employer has the final say in determining which specific co-pays, coinsurance, deductibles, insurance premiums, and services are covered.
HRA Types Available In 2019
Each company and each individual have very specific needs, which is why different HRA types are available to help fine-tune coverage. These are the 4 health reimbursement arrangement types:
- Qualified Small Employer
- Group Coverage
- One-Person Stand-Alone
There are many similarities between the expenses paid by this account and the Flexible Spending Account (FSA).
Qualified Small Employer
The Qualified Small Employer Plan is for small businesses with fewer than 50 employees. Both employer and employee have flexibility with this healthcare account type.
Group Coverage, Integrated or a Healthcare Reimbursement Plans (HRP) cover multiple employees.
The One-Person, Stand-Alone policy might be included in a lucrative executive compensation package, filling gaps in an individual’s other healthcare coverage. The Affordable Care Act put a kibosh on the popularity of Stand-Alone plans, by making them adhere to annual limit regulations if plans had more than 2 participants. As a result, this plan type can only have 1 participant, so it can avoid Obamacare limitations.
Entrepreneurs, nonprofits, and churches (C-Corporations) might prefer the One-Person, Stand-Alone account. Since this healthcare arrangement requires an employee to pay his own medical expenses, it is usually given to well-compensated, high-income employees. This is not linked to any group health insurance plan. Usually, this is used for reimbursement of personal insurance premiums and out-of-pocket expenses.
Retiree accounts might be useful for covering very specific items. This type of healthcare plan might be used for premiums or out-of-pocket medical expenses.
Get Started With FirstQuote Health
If you want to learn more about health reimbursement arrangements, or are just curious about what policies are available in your area, then FirstQuote Health can help. We offer fast and easy health insurance quotes and have experienced agents ready to help you find the right plan. With no obligation, get started, and enroll in health coverage as soon as today.