What is an HRA?

An HRA, or Health Reimbursement Arrangement, is a special type of financial account employers set up for their employees in order to help cover medical expenses. It is a tax-advantaged benefit that allows employers to provide reimbursements to their employees for qualified medical expenses not covered under their health plans.

The setup and use of an HRA account can vary greatly. In some cases the employer will set up a set monthly budget for each employee and employees will use their HRA funds to pay for out-of-pocket healthcare expenses, or reimburse for already incurred healthcare expenses. In other cases, employers will setup an HRA and allow employees to contribute to the account. In this situation, these contributions are typically considered pre-tax income.

How an HRA Works

An HRA is funded by an employer, and typically funded from the employers general account. The employer must set up and manage the fund, receive and process reimbursement claims, and oversee the payment of reimbursements. Depending on the type of HRA that the employer has chosen for the employees, the employer may also decide to offer an employee-funded option.

The employer will typically limit the type of medical expenses covered, as well as the frequency and amount of reimbursements that can be claimed by each employee. However, it is also possible for employers to customize the HRA to meet their specific needs.

The Benefits of an HRA

An HRA is a great way to help cover healthcare expenses without having to pay the insurance companies’ high premiums. In addition to the convenience of an HRA account, the tax advantages make it a popular benefit choice for employers. HRA funds are not taxable to the employee, and they can be used to pay not only for medical expenses but also long-term care and dental expenses as well.

In addition to the monetary benefits, employees are able to save time by not having to manage their healthcare expenses, since the employer handles all of the paperwork and claims processing. The employee also benefits from knowing that their healthcare costs are taken into consideration by their employer, making them feel more secure about their heathcare coverage.

Conclusion

An HRA can be a great option for employers looking to provide employees with quality healthcare coverage without paying the high premiums that go along with traditional health insurance. It provides employees with the convenience and tax savings of having funds directly deposited into their account, as well as the peace of mind that comes with knowing their healthcare costs are taken care of.