Understanding Health Reimbursement Accounts: What You Need To Know

Understanding Health Reimbursement Accounts: What You Need To Know

As healthcare costs continue to rise, it’s becoming increasingly important for individuals to understand their healthcare options. One such option is a Health Reimbursement Account (HRA). In this article, we’ll dive into what an HRA is, how it works, and what you need to know if you’re considering this healthcare option.

What is an HRA?
An HRA is an employer-funded healthcare benefit that reimburses employees for medical expenses. The funds contributed to an HRA are tax-free, both for the employee and the employer, which makes it an appealing option to many companies. The employee doesn’t have to pay taxes on the money received, and the employer can write off the contributions as a business expense.

How does an HRA work?
The employer sets up the HRA and decides how much money to contribute to each employee’s account. The employee can then use those funds to pay for eligible medical expenses, such as deductibles, copays, and prescriptions. It’s important to note that an HRA only covers expenses that are deemed as qualifying medical expenses by the Internal Revenue Service (IRS). If the employee doesn’t use all the funds in their HRA by the end of the year, the remaining balance can roll over to the next year.

What are the types of HRAs?
There are different types of HRAs, and each one works a little differently. Here are the three most common types of HRAs:

1. Integrated HRA – This type of HRA is paired with a high-deductible health plan (HDHP). The HRA is used to pay for medical expenses until the deductible is met, and then the insurance kicks in. This HRA is employer-funded and can be used for the employee and/or their dependents.

2. Excepted Benefit HRA – This HRA is meant to be used for limited purposes, such as vision or dental care. It’s also employer-funded and can be offered in addition to other healthcare benefits.

3. Qualified Small Employer HRA (QSEHRA) – This HRA is available to small businesses with fewer than 50 full-time employees. The employer sets a contribution limit per year, and the employee can use those funds to pay for eligible medical expenses.

What are the benefits of an HRA?
For employers, HRAs can be a great way to offer healthcare benefits without breaking the bank. Employers can choose how much money to contribute to their employees’ HRAs, which can help them control their healthcare costs. For employees, HRAs can help them save money on medical expenses. The money contributed to an HRA is tax-free, and the employee can use it to pay for eligible medical expenses that they would otherwise have to pay out of pocket.

What are the drawbacks of an HRA?
While HRAs can be a great option for some people, they’re not without their drawbacks. For one, the funds contributed to an HRA are controlled by the employer, which can make it difficult for employees to find healthcare providers who accept that form of payment. Additionally, HRAs provide limited coverage, which means employees may have to pay out of pocket for some medical expenses.

Conclusion
Health Reimbursement Accounts can be a valuable healthcare option for both employers and employees. They offer tax-free benefits that help control healthcare costs, and they can be used to cover a wide range of medical expenses. However, it’s important to understand the limitations of HRAs, and to make sure that they’re the right option for your healthcare needs. By understanding the ins and outs of HRAs, you can make an informed decision about your healthcare options.

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