Health Reimbursement Arrangement (HRA)

Definition - What does Health Reimbursement Arrangement (HRA) mean?

A health reimbursement arrangement (HRA) is an account funded by an employer that may be used to reimburse employees for medial expenses and health insurance premiums. As a part of its employee health care program, an employer can contribute an unlimited amount of money to an employee's HRA. An Internal Revenue Service (IRS) approved HRA plan offers tax benefits for both employers and employees. Health reimbursement arrangements are often referred to as health reimbursement accounts.

WorkplaceTesting explains Health Reimbursement Arrangement (HRA)

Under the IRS guidelines, an employer may take a full tax deduction for all funds contributed to an health reimbursement account. Further, employees do not have to pay income tax when receiving reimbursement for medical expenses through an HRA. To qualify for IRS approval, an HRA must be wholly funded by the employer. Employees may not be required to contribute to an HRA nor may salary deductions be used to fund the accounts.

When incorporating an HRA into an employee benefits plan, an employer may choose which medical expenses will be reimbursed. The costs of health care services and health insurance premiums may be reimbursed from the account. However, only qualified medical expenses as defined by Section 213 of the U.S. Internal Revenue Service (IRS) Tax Code are reimbursable.

HRAs are similar to health savings accounts (HSA), but offer more flexibility for employers and employees. A health savings account must be linked to a high-deductible health plan (HDHP), whereas and HRA may be used with any plan. In addition, unlike HRAs, HSAs may not be used to pay health insurance premiums. Also, while employees may contribute funds to an HSA, only employer dollars may be used to fund an HRA.


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