Exploring a Health Reimbursement Arrangement: Benefits, Setup & Tips

Introduction

A Health Reimbursement Arrangement (HRA) is an employer-funded plan that reimburses employees for qualified medical expenses. HRAs are designed to help employees cover the cost of medical care that may not be covered by traditional health insurance plans. They are a great way for employers to provide their employees with additional benefits without having to pay additional premiums or incur additional costs.

The Basics of Setting Up a Health Reimbursement Arrangement

Before setting up an HRA, employers need to determine which expenses will be eligible for reimbursement. Generally speaking, any expense related to the diagnosis, treatment, or prevention of illness or injury can qualify. This includes doctor’s visits, prescription drugs, co-pays, lab tests, and other out-of-pocket expenses. Employers should consult with their tax advisors to ensure that all expenses meet the IRS guidelines for eligibility.

Once the eligible expenses have been determined, employers need to set up the HRA. This typically involves setting up a bank account in the employer’s name, where funds will be deposited to cover employee reimbursements. The employer will also need to create a policy document outlining the terms of the arrangement, such as how much coverage is provided and what types of expenses are eligible for reimbursement.

How to Choose the Best Provider for a Health Reimbursement Arrangement

When selecting a provider for an HRA, it’s important to research available providers to find the best fit for your company. Look at the services they offer, such as administrative support and access to online tools, as well as the cost of their services. Most providers charge a flat fee per employee, so it’s important to compare costs to get the best deal. Additionally, look for providers that offer customizable options, such as the ability to add or remove coverage as needed.

The Advantages and Disadvantages of a Health Reimbursement Arrangement

HRAs can be beneficial for both employers and employees. For employers, they provide an easy way to provide additional benefits to employees without incurring additional costs. Employees benefit from the added flexibility of being able to choose their own healthcare providers and receive reimbursement for qualifying expenses.

However, there are some drawbacks to consider when setting up an HRA. For example, employers are responsible for setting up and managing the arrangement, which can be time consuming. Additionally, the amount of coverage provided is limited, and if an employee has large medical bills, they may not be fully covered. Finally, HRAs are subject to certain taxes and regulations, so it’s important for employers to understand their obligations before setting one up.

What to Consider When Setting Up a Health Reimbursement Arrangement

When setting up an HRA, employers should consider the tax implications. According to the Internal Revenue Service, employers are responsible for withholding taxes on employee reimbursements. Additionally, employers should consider the cost of coverage, as well as employee participation. Some employers may require employees to contribute to the cost of coverage, while others may cover the full cost. It’s important to consider these factors when deciding how to structure an HRA.

Tips for Making the Most Out of a Health Reimbursement Arrangement

To make the most out of an HRA, employers should maximize employee participation by offering incentives for employees to use the plan. Additionally, employers should review their policies annually to ensure they are up to date with current regulations and to make sure the plan is meeting the needs of their employees. Finally, employers should track their expenses and monitor reimbursements to make sure they are staying within budget.

Common Questions About Health Reimbursement Arrangements

There are a few common questions about HRAs, including who is eligible, how reimbursements are distributed, and what types of expenses are covered. Generally speaking, any employee who meets the qualifications outlined in the employer’s policy is eligible to participate in an HRA. Reimbursements are typically distributed directly to the employee, and the types of expenses covered vary depending on the policy. Employers should consult their policy documents or speak with their provider for more information.

Conclusion

A Health Reimbursement Arrangement is an effective way for employers to provide their employees with additional benefits without incurring additional costs. However, there are some considerations to take into account when setting up an HRA, such as taxes and employee participation. By researching available providers, understanding the tax implications, and reviewing policies annually, employers can make the most out of an HRA and provide their employees with the best possible coverage.