Health Reimbursement Arrangements
Taking the Wheel to Drive Down Costs
Health Reimbursement Arrangements (HRAs) provide employers greater flexibility and control over health care costs. With the goal of achieving more cost savings, HRAs are designed to help increase employee responsibility for health care decisions and expenditures. Also see Health Savings Accounts.
CDPHP offers a variety of customizable HRA options for large groups. For easy administration, our discounted HRA offerings are specially designed for small groups.
Definition
The HRA is an employer-funded account that reimburses employees for qualified medical expenses incurred by the employee and his/her dependents.
An employer can choose to offer an HRA to employees with its health plan or as a stand-alone account. In many cases, HRAs are linked to consumer-driven health plans, such as those with high deductibles.
Advantages for the Employer
Flexibility and control over the plan design—Employers have a variety of options to customize their HRA:
- Enable employees to fund medical expenses subject to your health plan deductible, coinsurance, copayments, prescription medications, dental services, and other health-related services.
- Funds can be used to reimburse premiums for accident or health coverage for current employees, retirees, and COBRA-qualified beneficiaries. Discuss this option with a tax advisor or legal counsel, as certain limitations apply.
- Balances can be rolled over from year to year if the employer chooses.
- Contributions are tax-deductible.
- Further cost savings can be achieved because the consumer-driven health plan encourages more informed health care consumers.
Advantages for Your Employees
- More control over how their health care dollars are being spent.
- Helps offset out-of-pocket expenses.
- Reimbursements are tax-free to employees because they are not considered income.
- Unused funds can carry over to the next year, if allowed by the plan design.
- Greater discretion over the timing of health care spending.
Contributions
Only the employer can make contributions to an HRA. Employers typically set limits less than or equal to the deductible of the employees’ health plan.
Spending
HRA funds remain tax-free as long as they are used for qualified medical expenses such as:
- Doctor visits.
- Prescription drugs.
- Over-the-counter drugs.
- Dental care.
- Medical supplies.
Employers may choose to limit use of the HRA to cover only those expenses covered by the plan. To see a full list of qualified expenses, visit the IRS Web site.
Eligibility
Self-employed individuals, such as partners in a partnership or anyone with two percent or more ownership in a subchapter S corporation, are not eligible to participate on a tax-favored basis. If you have further questions, contact your tax advisor or legal counsel.
For More Information
Contact CDPHP at (518) 641-5000 or 1-800-993-7299.