Health reimbursement accounts (HRAs) are employer-funded tax-advantaged accounts, designed to help employees save money on the high costs associated with healthcare. By setting aside a specific amount of pre-tax dollars in an HRA, employers help their employees offset expensive medical bills and provide them with an “allowance” to use should an expense occur. 

 

Incorporating the benefits of both flexible spending accounts (FSAs) and health savings accounts (HSAs), HRAs combine the control and cost-saving tools that employers are seeking with the flexibility and protection that their employees need. 

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How does it work?

 

When an employer chooses to provide an HRA, they allocate funds into individual reimbursement accounts for their employees. They will also define “eligible” expenses that the employee can pay with these funds (e.g. specified out-of-pocket expenses such as deductibles or copays). This is a notional account, meaning funds are only pulled from the employer when they are used by the employee.

 

HRAs help employers save money by migrating from first-dollar coverage to a high-deductible health plan (HDHP) without having to increase their employees’ out-of-pocket exposure. Even better, any administrative fees associated with the HRA, along with the funds reimbursed to employees, are both tax-deductible to the employer.

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Items to note: 

• An employee must be enrolled in their employer-sponsored medical plan to participate in an HRA.

• An HRA plan is funded solely by the employer.

• Some HRA plans allow for funds to be rolled over from year to year, preventing employees from losing their unspent dollars at the end of the plan year. The employer can opt in or out of this option when designing their plan.