Health reimbursement accounts (HRA's)
A Health Reimbursement Arrangement (also referred to as a Health Reimbursement Account) is an IRS-approved, employer-funded, tax advantaged health benefit plan that reimburses employees for out-of-pocket medical expenses and individual health insurance premiums. An HRA allows the employer to make contributions to an employee’s account and provide reimbursement for eligible expenses.
Following is the four step process for HRA’s:
Step 1: The company chooses a monthly benefit amount of tax-free money to offer the employee. Depending on the type of HRA, the company may be able to offer different amounts to different employees based on their job criteria. Businesses don’t need to prefund these allowances.
Step 2: Employees buy what fits their personal needs without input from the company though the company usually does define which expenses are eligible for reimbursement. Broadly, employees can receive reimbursement for any item listed in IRS Code Section 213(d) including personal insurance premiums.
Step 3: When the employee incurs an eligible expense he/she submits proof of the expense to the company. Proof must include a description of the product or service, the cost, and the date expense was incurred. Common items of proof include invoices, receipts and Explanations of Benefits (EOB’s) from the insurer.
Step 4: The company reviews the employee’s submission, and if it qualifies, reimburses the employee tax-free typically in the employee’s next regular paycheck. If it doesn’t qualify, the company must follow a declined claims and appeals process outlined in their HRA plan documents.
An HRA is an excellent way to provide health insurance benefits and give the employee tax-free money to spend on health care products that are most valuable to that particular employee.