Health Reimbursement Arrangements (HRAs)

About HRAs

Health Reimbursement Arrangements (HRAs) are employer-funded plans that reimburse employees for qualified medical expenses and health insurance premiums. These tax-advantaged arrangements allow small employers to provide valuable health benefits while maintaining control over healthcare spending.

Key Features of HRAs

1. Employer-Funded:
   • HRAs are solely funded by the employer. Employees do not contribute to the HRA.
   • Employers set an annual contribution limit for each employee.
2. Tax Advantages:
   • Reimbursements from an HRA are tax-free for employees if they are used for qualified medical expenses.
   • Employers can deduct the reimbursements as a business expense.
3. Qualified Expenses:
   • HRAs can reimburse a wide range of medical expenses, including individual health insurance premiums, out-of-pocket costs, dental and vision care, and other IRS-approved healthcare expenses.
4. Plan Variations:
   • QSEHRA (Qualified Small Employer HRA): For small employers with fewer than 50 employees, QSEHRA reimburses individual health insurance premiums and medical expenses on a tax-free basis.
   • ICHRA (Individual Coverage HRA): Available to employers of any size, ICHRA reimburses employees for individual health insurance premiums and medical expenses, with more flexibility in plan design and eligibility requirements.

Advantages of HRAs

• Cost Control: Employers determine the contribution amount, allowing for predictable healthcare spending.
• Customization: HRAs can be tailored to meet the specific needs of the business and its employees, including variations like QSEHRA and ICHRA.
• Employee Benefits: Employees benefit from tax-free reimbursements for a wide range of medical expenses, increasing their overall compensation package.

Frequently Asked Questions

• Are HRA reimbursements taxable?
  No, HRA reimbursements are not taxable for employees if used for qualified medical expenses. Employers can deduct these reimbursements as business expenses.
• What expenses can be reimbursed through an HRA?
  HRAs can reimburse individual health insurance premiums, out-of-pocket medical expenses, dental and vision care, and other IRS-approved healthcare costs.
• How do HRAs differ from health insurance stipends?
  HRAs provide tax-free reimbursements for qualified expenses, whereas health insurance stipends are post-tax payments subject to income and payroll taxes. HRAs also require compliance with specific IRS rules, while stipends are simpler to administer.