Tipsheets
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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