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Health Reimbursement Accounts (HRAs)

Though similar in some ways to an health savings account (HSA), a health reimbursement arrangement (HRA) can only be funded by employers—allowing a company to set aside pre-tax dollars to cover employees' out-of-pocket medical expenses, such as co-pays, deductibles, and coinsurance. However, with HRAs the deductible is not set in law as it is with HSAs. HRAs are frequently paired with high-deductible-health-plans (HDHPs), of which the contribution is tax deductible. As with HSAs, HRAs offer employers federal and state income tax savings and payroll tax savings.

What HRAs Offer Employers

Employers own HRAs and have flexibility in designing the plan. Employers determine:

  • The amount contributed to the HRA
  • The amount that can be rolled over year-to-year
  • What happens to unused funds when an employee leaves the company
  • The timetable for the company's contribution
  • Whether to and at what amount to cap contributions
  • The number of HRA plans offered (different plan designs can be established for different classes of employees)

Companies of any size are eligible for HRAs, though owners of S corporations, limited liability companies, and the self-employed can fund HRAs for their employees but not for themselves. Owners of C corporations may fund HRAs for both themselves and their employees.

What HRAs Offer Employees

As an alternative to traditional health insurance, HRAs provide employees with tax advantages for out-of-pocket spending on medical expenses, including coinsurance, co-pays, and the deductible of an HDHP, if used. In addition, employees save on the cost of HDHPs, which typically have lower premiums that traditional health insurance plans.

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