Health Reimbursement Arrangements
Health Reimbursement Arrangements (HRAs) are flexible arrangements that allow employers to aid employees with the payment of out-of-pocket medical costs while also reaping tax benefits. HRAs are fully funded by the employer, pre-tax, and no employee contributions are allowed. HRA funds do not count as employee income and cannot be funded through cafeteria plans. By pairing HRAs with a high deductible or other low premium health plan, employers can keep their premium contributions low while also aiding those employees who utilize their health coverage the most. HRAs are nominal accounts, meaning the entire amount funded must be available to participating employees from the beginning of the plan year.
HRAs must only be used to pay for substantiated medical expenses, meaning an explanation of benefits or other form of documentation of the services rendered must be provided. Allowable expenses include medical, dental, vision and pharmacy costs. A full listing of qualified medical expenses can be found in IRS Publication 502.
Beyond these basic rules, HRAs are very flexible benefits. Employers can set the total fund amounts (there is no annual limit), and can set how the HRA funds can be utilized. For instance, many HRAs allow for reimbursement of deductible costs only, but others can allow for fund reimbursement of all allowable medical costs, including insurance premiums (unlike FSAs). HRAs may be offered in conjunction with health FSAs. Unlike HSAs, there are no reporting requirements for HRAs on individuals' tax returns. Employers can choose to allow rollover of unused funds at the end of the plan year, or choose to reset the fund amounts. HRAs are subject to COBRA, so qualified beneficiaries must be allowed to elect and use their HRAs during any COBRA period.
This content is being provided as an informational tool. It is believed to be accurate at the time of posting and is subject to change. It is recommended that plans consult with their own experts or counsel to review all applicable federal and state legal requirements that may apply to their group health plan. By providing this information, Meritain Health is not exercising discretionary authority or assuming a plan fiduciary role, nor is Meritain Health providing legal advice.