Also known as a health reimbursement account, a health reimbursement arrangement or HRA is a tax-advantage, employer-funded, and IRS-approved health benefit plan that is used to reimburse employees for not only out-of-pocket medical expenses but also personal health insurance premiums. It helps to measure the value of managers and employees in an organization by analyzing the cost incurred in hiring, training and developing them.
How Does It Work?
HRAs are notional arrangements where no expenses are incurred until reimbursement is paid. This helps an employer reimburse an employee after the employee has incurred an approved medical expense. This is mainly useful for companies that want to control and retain their cash flow.
Below are a few advantages of an HRA for both employers and employees.
Advantages for Employers
1. Cost Control
An HRA allows employers to decide on the amount of money they want to contribute to each of their employee’s HRA accounts. This helps employers plan ahead since they know the amount of money they are likely to spend on these benefits. In addition to HRAs, most employers also offer a high deductible health plan, which results in reduced premiums for both employees and employers.
2. Talent Recruitment
An HRA benefits package ensures employers are always attracting and retaining talent. Besides, the benefits to employees ensure a company’s benefits package shine such that they can convince prospects to accept the company or employer’s offer.
Since the employers are the ones who plan and contribute, they have the ability to plan something that suits them.
Advantages for Employees
1. Reduced Healthcare Cost
Paying for healthcare services is usually very costly. If an employee is offered an HRA as well as a high deductible health plan (HDHP), there will be a low premium cost, which will lead to a reduction in the cost of healthcare for employees. Moreover, employees can use HRA funds to pay for their deductibles, co-payments, and co-insurance.
If the employer’s benefits plan allows for rollover, the unused balance will always roll over to the next year. This is beneficial to employees since their healthcare expenses can decrease or increase depending on the yearly rollover.
3. Tax-Free Reimbursement
Whenever employees file claims about a qualified medical expense, the reimbursement is usually tax-free.