Health Reimbursement Arrangement: HRAs For
Groups
An HRA sometimes referred to as a, Health Reimbursement Arrangement, or "health reimbursement accounts" are financial programs that coincide with a group health insurance plan that reimburses employees for qualified medical expenses. The United States Department of the Treasury issued guidance on health reimbursement accounts in a revenue ruling in June 2002. These plans are emerging in the marketplace and their designs are still evolving daily.
To get a better understanding of Health reimbursement accounts (HRAs), we must understand responsibilities of the employer and employees of the program. An HRA consists of funds set aside by employers to reimburse employees for qualified medical expenses, just as an insurance plan will reimburse covered individuals for the cost of services incurred. The guidance provided by the Department of the Treasury makes it clear that health reimbursement accounts are not a new type of account designated within the Internal Revenue Code. Rather, employers qualify for preferential tax treatment of funds placed in a health reimbursement account in the same way that they qualify for tax advantages by funding an insurance plan. Employers can deduct 100 percent of the cost of an insurance plan, and now a health reimbursement account, as a business expense under Internal Revenue Code, section 162.
Health reimbursement arrangements are open to employees of companies
of all sizes, unlike medical savings accounts that are only available
for small business employees. Most self funded health insurance
programs use an HRA for their employees to save a great deal of
money in their health and welfare expenses. A health reimbursement
account can provide “first-dollar" medical coverage until
funds are exhausted. For example, if an employee has a $1000 qualifying
medical expense, then the full amount will be covered by the health
reimbursement arrangement if the funds are available in the account.
Under a health reimbursement account, the employer provides funds,
not the employee. All unused funds are rolled over at the end of
the year. Former employees, including retirees, can have continued
access to unused reimbursement amounts. Health reimbursement accounts
remain with the originating employer and do not follow an employee
to new employment. HRS's can be set up as a specific plan design
based on the employer’s view of health and benefits. Be sure
to ask your TPA (Third Party Administrator) if they can set up a
program that fits your business model.
