Making Sense of Health Reimbursement Arrangements: A Primer for Employers and HR Managers.

Health Reimbursement Arrangements (HRAs) are becoming increasingly popular among employers as a way to help manage their employees’ healthcare costs. If you’re an employer, or an HR manager, who’s considering implementing an HRA, it’s important to understand what they are, how they work, and what benefits they can offer you and your employees.

An HRA is a type of account used to pay for eligible medical expenses. It’s funded solely by the employer and is typically offered as part of a benefits package. Employees can use funds from the HRA to pay for certain out-of-pocket medical expenses, such as co-payments, deductibles, and prescription drugs, as well as expenses that are not covered by their insurance plans, such as vision and dental care.

One of the most significant benefits of an HRA is that it’s tax-efficient. Employer contributions to the HRA are tax-deductible, and employee withdrawals from the HRA are tax-free when used to pay for eligible medical expenses, making it a win-win situation for both the employer and the employee.

There are three main types of HRAs:

1. Integrated HRA: This is the most common type of HRA, which is offered in conjunction with a traditional group health insurance plan. The HRA is designed to supplement the employee’s insurance plan and may be used to pay for expenses not covered by the insurance, such as co-payments and deductibles.

2. Stand-alone HRA: This type of HRA is offered as the sole form of health coverage for employees. Employers deposit funds into an HRA account, which employees can use to pay for eligible medical expenses.

3. Retiree HRA: This HRA is designed to provide healthcare benefits to retired employees. Employers can fund the HRA while the employee is still working, and the funds can be used to pay for eligible medical expenses once the employee retires.

When considering implementing an HRA, it’s important to take into account the following factors:

1. Plan design: The HRA plan should be tailored to meet the specific needs of the employer and employees. The plan can be designed to cover a wide range of medical expenses or can be limited to certain expenses.

2. Funding: The employer is responsible for funding the HRA. The funds can either be provided as a lump sum at the beginning of the year or can be deposited throughout the year.

3. Administration: The HRA needs to be managed and administered by a third-party administrator. The administrator is responsible for ensuring the HRA is compliant with regulatory requirements and that the funds are used for eligible medical expenses.

In conclusion, HRAs are an excellent tool for employers to manage healthcare costs and provide benefits to their employees. An HRA can be tailored to meet the specific needs of the employer and employees, can be tax-efficient, and can be used to cover a wide range of medical expenses. As with any benefit program, it’s important to work with a trusted advisor to design and manage the HRA effectively.