Health Reimbursement Arrangement (HRA)

A Health Reimbursement Arrangement (HRA) is an employer-funded plan that offers employees and retirees a tax-free reimbursement option for qualified medical expenses. Qualified medical expenses include out-of-pocket expenses not covered by a health plan, as well as premiums such as Medicare Part B premiums or premiums for insurance purchased on the individual marketplace.

There are four types of HRAs: Standard HRA, Qualified Small Employer HRA (QSEHRA), Individual Coverage HRA (ICHRA), and Expected Benefit HRA (EBHRA). Each HRA type offers unique benefits and eligibility criteria.

HRAs offer a win-win solution, providing financial benefits and flexibility to both employers and employees while enhancing the overall healthcare benefit package. Understanding these HRAs helps employers choose the best option for their workforce, ensuring compliance with tax and healthcare regulations. By integrating HRAs into their benefits strategy, employers can offer a more comprehensive and attractive healthcare package, ultimately improving employee satisfaction and retention.

Key features of HRAs

Tax Advantages

Employer contributions to HRAs and reimbursements for eligible medical expenses are tax-free for employers, employees and retirees.

Plan Design

Plan sponsors can design HRAs to meet the specific needs of their employees and retirees, ranging from expenses covered, contribution amounts, and other plan details.

Reimbursement

Eligible healthcare expenses, such as premiums, co-pays, deductibles, prescription medications, and certain medical services can be reimbursed from the HRA.

Flexibility

A variety of financial accounts, including trust accounts and VEBAs, can be used to fund HRA payments.

Attract and retain talent

A customizable benefits package enhances job satisfaction, engagement and loyalty to an organization.

How HRAs work

The Health Reimbursement Arrangements is a valuable tool for employers seeking to offer flexible, tax-advantaged healthcare benefits. By understanding the different types of HRAs, their advantages, and the considerations for implementation, employers can effectively utilize HRAs to enhance their benefits offerings and support their employees' health and financial well-being.