Buhr & Associates

Health Reimbursement Arrangement


   A Health Reimbursement Arrangements (HRA) is an employer-paid health care arrangement which is often paired with a high deductible
   health plan to help employers lower their health care costs without sacrificing employee benefits.  


How does it work?


   Typically an employer creates an unfunded HRA account for each participating employee and reimburses the employee up to the HRA limits
   that the employer presets.  An employer generally reimburses all or a portion of the deductible, coinsurance and copays. If the employer
   chooses, dental and vision expenses may be reimbursed as well.

Tax Implications


   All contributions made to the HRA by the employer are 100% tax deductible.  Any reimbursement that an employee receives is tax-free.


Advantages

   Employers benefit from offering an HRA and pairing it with a high deductible health plan by reducing insurance premiums. A much higher
   deductible reduces premium cost.  And, statistically, not every employee is going to meet their maximum HRA allotment, therefore,
   employers can save a substantial amount of money over traditional plan designs.

   While employees may have a much higher deductible than what they have been used to, by having the employer reimburse all or a portion of
   the deductible, coinsurance and copays, the employee does not have near the out-of-pocket expense that they first think.  For instance, if an
   employee has a $3,500 deductible and the employer is reimbursing the last $2,500 of the deductible (in order to keep the out-of-pocket the
   same as their previous plan), the employee really only has a $1,000 deductible.  Depending upon how the employer structures the HRA, the
   benefit to the employee can even be better than their current plan design.


What expenses are not eligible for reimbursement?

  • ​Medical expenses not defined as eligible under the HRA.
  • Medical expenses that do not meet the definition of “medical care” under Internal Revenue Code section 213(d).
  • Medical expenses incurred by an employee, employee’s spouse or any eligible dependents prior to the effective date of the HRA.
  • Medical expenses that can be reimbursed to an employee through another source, such as group health insurance.


   If an expense is deemed ineligible after it has already been paid, the HRA participant will be required to pay the HRA back.  This typically is
   done by having the employee immediately pay back the ineligible expense or by having future HRA eligible expenses offset by the amount
   previously paid out. If the employee fails to reimburse the HRA or if there are no future claims to offset the ineligible expense during the plan
   year, the employee may be required to pay income tax. For a complete list of eligible and ineligible HRA reimbursement expenses, please
   refer to IRS Publication 502 at: www.irs.gov/pub/irs-pdf/p502.pdf.

Health Reimbursement Arrangements