Health Reimbursement Accounts (HRA, also known as Health Reimbursement Arrangements) and Health Savings Accounts (HSA) sound very similar, but there are some significant differences between the two. Below, your trusted California health insurance agent discusses the differences and benefits of HRAs and HSAs.
A Health Reimbursement Account is entirely employer-funded and is designed to reimburse employees for expenses that are not covered by the company’s health insurance plan. Because HRAs are employer-funded, the money contributed to and distributed from the account is tax-deductible for the employer and tax-free for the employee.
The employer decides what expenses will be reimbursed and can choose to cover some or all of the health expenses allowed by the IRS. An HRA could pay all medical expenses, including premiums and coinsurance amounts, for example, or could be limited to covering only dental or vision expenses. The employer also has the choice to roll the funds over to the next year for the employee or institute a “use it or lose it” policy.
HRAs can help boost employee morale for employers who have chosen a high deductible plan or one with limited coverage in order to save on insurance costs—while the health plan may have limitations, employers who establish an HRA send a message that they are concerned about the financial and personal well-being of their employees.
Here is a snapshot of an HRA:
- Entirely employer funded
- Funds deposited and distributed are tax-deductible for employers and not taxed for employees
- Qualified medical expenses can be reimbursed
- No limits on how much can be reimbursed
- Money can be rolled over from one year to the next, at the employer’s discretion
In this post we’ve discussed Health Reimbursement Accounts and some of their benefits. In our next post we’ll cover Health Savings Accounts and highlight some of the benefits HSAs provide to consumers.