What is a Health Reimbursement Account?
An employer-funded Health Reimbursement Account (HRA) is a health-spending account made available to company employees. Maximum annual amounts and rollover availability are determined by the employer. The funds in the HRA may be used to pay for eligible medical expenses such as medical, dental, vision, and pharmacy, depending on the policies established by the employer. HRA account plans are not health insurance, but rather a way for an employer to pay for qualified medical expenses incurred by their employees.
Other critical information about an HRA-based medical plan is as follows:
- A self-employed individual cannot open their own HRA account.
- Employer-provided funds are exempt from income, social security, and Medicare taxes.
- Employees are not permitted to contribute funds to the account.
- An HRA plan has no monetary value.
- Unused funds may be carried over to the following year by the employer.
- If an employer gives an employee any unused funds at the end of a fiscal year, those funds are taxable as ordinary income.
- Medical expenses for the employee's spouse or dependents can also be covered by the HRA account.
How does an HRA work?
When an employee begins working for a company, they will be informed of any HRA plan benefits and given the option to enrol.
An HRA is not health insurance, but it is a convenient way for employees to pay for a variety of medical expenses, including those that are not covered by a standard health insurance plan. The HRA plan's medical expenses are determined by the employer (medical, dental, pharmacy, vision, etc.).
Qualified expenses can be paid depending on the employer's HRA plan:
- Instantly, using a credit or debit card linked to the employee's account
- After the employee has paid out of pocket and submitted eligible receipts, he or she will be reimbursed.
- Employees cannot take any funds with them if they leave the company because the HRA plan is owned by the employer.
- Some employers, however, may allow employees to access their HRA after retirement.
Advantages of HRA medical plans
There are numerous benefits to HRA plans for both employers and employees.
Benefits for employers:
- Allows employers to retain control over the design of HRA plans and the fund rollover option.
- Is simple to integrate with an FSA (Flexible Spending Account)
- It has the potential to be used as a tool for employee retention.
- Provides a tax-favoured benefit
Benefits for Employees:
- Enables asset accumulation
- It is not necessary to have an HDHP (High Deductible Health Plan)
- Is entirely funded by the employer
- The funds are immediately available.
What is the difference between an HRA and an HSA insurance plan?
The difference between an HRA and an HSA insurance plan is that an HRA insurance plan is owned and funded by the employer, whereas an HSA insurance plan is owned and funded by the employee. This means that if an employee with an HRA plan leaves their company, any remaining funds in the HRA will be transferred to the employer. Employees, on the other hand, take an HSA insurance plan with them when they change jobs.