A Health Reimbursement Arrangement (HRA) is an employer funded benefit that is used to reimburse employees for medical expenses as defined in IRS Code 213(d). You as an employer are able to contribute tax-deductible dollars to the account, allowing employees to receive tax-free reimbursements.
The HRA allows for employees to be reimbursed for the same expenses as a Health Flexible Spending Account (FSA). This includes insurance co-pays and deductibles, dental and vision expenses, and prescription co-pays.
What’s great about HRAs is employers have the flexibility to restrict what can be reimbursed. For example, if you want to only reimburse a portion of the high deductible health insurance, prescription co-pays or just vision-related expenses, you can design the plan with those restrictions. On the flip-side, if you want your employees to receive reimbursement for all eligible medical, dental and vision expenses allowed under IRS guidelines, you can.
What are the benefits for employers?
- Employer contributions to HRAs are NOT subject to payroll taxes, workers’ compensation or pension and profit sharing contributions.
- By combining a higher deductible insurance plan with an HRA, you can lower your company’s health insurance costs!
- Administrative costs are tax deductible and can be paid by the employer, the employee or both
- HRAs complement FSA plans and help to increase FSA participation.
How does combining the HRA and FSA work?
An HRA and FSA work together to give your employees a robust benefits package. Having both plans allows for employees to better manage their health expenses. The HRA provides employees with employer funds and the FSA allows employees to contribute pre-tax dollars to pay for additional out-of-pocket expenses – making it easier to manage those costs. It’s a win-win for both the employer and employee.
Interested in learning more about how an HRA can work for you, contact us today!