Breaking Down the Health Reimbursement Arrangement: How it Works and What it Means for Your Wallet

As health care costs continue to rise, many employers are turning to Health Reimbursement Arrangements (HRAs) as a way to offset the burden on employees. But what exactly is an HRA, and how can it help you save money on medical expenses?

An HRA is a type of employer-funded health benefit that reimburses employees for out-of-pocket medical expenses. These expenses can include everything from deductibles and copays to prescription drugs and medical equipment. The amount of money available to each employee varies depending on the employer’s HRA plan.

When employees have an eligible expense, they simply submit a claim to their HRA administrator. The administrator then verifies the expense and reimburses the employee up to the amount allocated in their HRA.

One of the key advantages of an HRA is that the money is tax-free. This means that employees do not have to pay any taxes on the money they receive from their HRA. Additionally, because the HRA is funded by the employer, employees do not have to contribute any of their own money to the plan.

Another benefit of an HRA is that it can help reduce out-of-pocket expenses for employees. For example, if an employee has a high deductible health plan, they may be responsible for paying thousands of dollars in deductibles before their insurance kicks in. However, with an HRA, the employer can provide funds to help cover these costs.

HRAs are also flexible. Employers can design their HRA plan to meet the specific needs and budget of their organization. For example, an employer could choose to provide a higher HRA contribution to employees with chronic health conditions or families with dependents.

While HRAs offer many benefits, there are some drawbacks to consider. First, not all employers offer HRAs, so employees may not have access to this benefit. Additionally, because the employer funds the HRA, employees may lose any unspent funds at the end of the year if the employer does not allow for rollovers or carryovers.

In conclusion, an HRA can be a beneficial tool for employees to offset the cost of medical expenses. It is a tax-free, flexible benefit that can help reduce out-of-pocket expenses. However, due to its design and limitations, it may not be the best option for all employees or employers. It’s important to carefully review your HRA plan and determine if it’s the right fit for you and your wallet.