Health Reimbursement Arrangement (HRA)

 Do you know what HRA stands for?

Employer-funded HRAs compensate workers for eligible medical expenses and, in certain cases, insurance premiums, if applicable. Reimbursement payments received by workers are generally tax-deductible, but reimbursement payments made by employers can be deducted from their taxes.

Medical expenses and insurance premiums may be paid for by HRAs, depending on the circumstances.

Human Resources Administration (HRA) programs are paid by businesses, not employees.

In the event of an employee's departure from the company, the HRA is forfeited.

Government guidelines dictate which costs employees can be reimbursed for, which enterprises can further narrow.

Health insurance premiums, vision and dental insurance premiums, and qualified medical costs can all be reimbursed by an HRA.

HRA: An Overview of the Payment Process

A health reimbursement agreement (HRA) is a method through which a business agrees to pay for the medical expenses of its workers. It's up to the employer to decide how much it'll pay into the plan, but employees can seek reimbursement for real medical expenses up to the firm's predetermined maximum. All employees in the same class must pay the same amount toward their HRA. 1

An HRA isn't the same as a checking or savings account, for example. In order to pay medical expenses, employees cannot withdraw money in advance. As a result, they must first experience the cost before getting reimbursed for it. If an HRA debit card is provided by the employer, payment can be made at the time of service. In the event that an employee exhausts all of his or her HRA funds prior to the end of the year, he or she will be forced to pay for any subsequent medical bills out of pocket or with funds from a flexible spending account (FSA), also known as a flexible spending arrangement, or a health savings account (HSA) for employees with a high-deductible health plan (HDHP).

Small Business Health Insurance Reimbursement Plan (QSEHRA)

Employers with fewer than 50 full-time workers may be eligible for a rebate on health insurance premiums known as a "Qualified Small Employer Health Reimbursement Arrangement" (QSEHRA). It is possible to pay for medical expenses that might otherwise be covered by health insurance via a QSEHRA, often known as a small company HRA. 1

The yearly limits are set by the Internal Revenue Service (IRS). Employers may reimburse up to $5,300 per year for individual employees and up to $11,050 per year for employees with families in 2021 and 2022, respectively (rising to $5,450 for individuals and $11,050 for families). Employees are exempt from paying taxes while employers can deduct the amount compensated from their taxes.

HRA for each person covered by ICHRA

There is a newer form of HRA called an Individual Coverage HRA (ICHRA), which was just made available in January 2020. In the past, HRAs couldn't be used to pay for individual health insurance premiums, but that has changed. "Individual coverage HRA" is a new type of HRA that will be available to employers starting in January 2020 as an alternative to group health insurance. 5

It is possible to use pretax HRA funds in the Affordable Care Act's individual health insurance marketplace or outside of it to obtain complete individual health insurance for employees, depending on their needs. Individual health insurance is an option. HRAs can also compensate employees for approved health expenditures like co-payments and deductibles. 1

If your employer's ICHRA fulfills the Affordable Care Act's "affordability" criteria, you may be eligible for a premium tax credit to help pay for health insurance coverage. If you opt out of the plan, you may not be eligible for the benefit.

HRAs with Excused Benefits (EBHRA)

EBHRAs (except for benefit HRAs) are available to employers who continue to offer regular group health insurance and reimburse employees for up to $1,800 in eligible medical costs each year. The "excepted benefit HRA," which employees can join even if they refuse group health insurance, does not allow them to use the money for the purchase of full health insurance coverage. Short-term health insurance, dental and vision insurance premiums, and other approved medical expenditures can be paid for with the money.

The Advantages of Health Insurance Reimbursement Plans

Medical reimbursement accounts (HRAs) cover a wide range of expenses related to medical treatment, including the cost of prescription drugs, insulin, annual physical exams, crutches, birth control pills, meals while in treatment, therapy sessions with a psychologist or psychiatrist, substance abuse treatment, and the cost of travel to and from medical appointments. Individual health insurance can also be purchased with pretax funds through the above-described individual coverage HRA by employees using their HRAs (ICHRA).

Health Insurance Reimbursement Arrangements' Limitations

An HRA only pays for approved medical and dental expenses. The Internal Revenue Service (IRS) defines medical expenses as expenditures made in order to cure or prevent physical or mental conditions, not general health-related expenditures such as vitamin purchases. 7

Examples of non-medical charges include teeth whitening, maternity clothing and burial services; health club membership fees; forbidden narcotics; child care for a healthy newborn; marital counseling; medicine from other countries; and other non-prescription pharmaceuticals.

Employers can deduct costs even if the IRS considers them eligible. An employer's HRA plan agreement will specify the types of medical costs that are eligible for reimbursement to workers.

The IRS considers COVID-19 tests and personal protective equipment like face masks and hand sanitizers to be qualifying medical costs that can be reimbursed or paid under health flexible spending accounts, health savings accounts, and health reimbursement plans (HRAs).

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Other Arrangements and Health Reimbursement Programs

You can't choose which plan to use for reimbursement when you have both an FSA and an HRA and incur expenses that are covered by both. Costs are instead reimbursed via the employer-established plan to pay first. Any further qualified medical costs that are reported for reimbursement under the first plan will be covered by the second plan once the first has run its course.

Paying for medical expenses out of your own money can be accomplished in two ways:


An employee can choose how much of their pre-tax wages they want to put into an FSA, which differs from a health reimbursement arrangement (HRA). Employees can contribute up to $2,750 a year in 2021 (and $2,850 in 2022). 910

The employer has the opportunity to carry over any unused HRA funds to the following year. Employers have the option of granting a grace period of up to 2.5 months or allowing a rollover of up to $550 for any unused FSA contributions from one plan year to the next. 11

To deal with the COVID-19 outbreak, the restrictions on accessing FSA funding were temporarily amended. According to the Consolidated Appropriations Act, 2021, which former President Donald Trump signed into law at the end of December 2020, employees can carry over money up to the full annual amount permitted ($2,750) for healthcare FSAs from 2020 to 2021 and from 2021 to 2022.



If money is left in a health savings account (HSA) at the end of the year, it is not subject to forfeiture, unlike an HRA, which is subject to forfeiture if money is left in it. As part of a high-deductible health plan (HDHP), a health savings account (HSA) can be utilized for healthcare bills. As with an FSA, contributions from the employee or employer are not eligible for use towards insurance premiums. 14

Workers can retain their health savings account (HSA) regardless of their employment status, unlike HRAs and flexible spending accounts (FSA).


Considerations Unique to This Situation HRA Funding

HRA financing and the annual contribution limit for each employee's HRA are solely governed by the company. Employees' HRA contributions are determined by employers, with the exception that all workers in the same class of employee must receive the same contribution. There may be a greater salary for workers who are older or have children.

An employer may set a maximum amount that can be rolled over from one year to the next, but it is possible to carry over any remaining HRA money to the next. Furthermore, if an employee is dismissed or moves on to work for another firm, they are no longer covered by the HRA. From the standpoint of HSAs, it's a lot more convenient to carry around a health savings account.

Tax Benefits for HRA Members

Employer contributions to the HRA are tax-deductible to the fullest extent permitted by law. To save money on retiree healthcare, a corporation might adopt a health reimbursement arrangement (HRA). In addition, because the plans are wholly funded by employers, enterprises can predict their annual maximum HRA health benefit expenditure thanks to the assurance they give. 1

Employees can utilize the plan to pay for a wide range of medical expenses that are not covered by their health insurance. Depending on the HRA type, they may also use it to cover the cost of health, dental, or vision insurance premiums. The reimbursements are also exempt from taxes, provided that they are not higher than a certain sum throughout the coverage period. Additionally, some employers may provide employees with additional health benefits, such as an FSA.

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