Understanding a Health Reimbursement Arrangement
Health reimbursement arrangements can be very beneficial to employers and employees alike. They provide tax-free money to employees that they can use to offset the often expensive costs associated with healthcare, and they provide employers with tax deductions that can help them save money on their insurance options.
There are several different health reimbursement arrangement policy types available to businesses today, but before we dive into those, let’s take a minute to learn a bit more about what this kind of arrangement is and what the tax benefits look like.
What Is a Health Reimbursement Arrangement?
A health reimbursement arrangement (HRA) is a specific kind of employer-funded plan that works to reimburse certain qualifying medical expenses and insurance premiums for employees.
With an HRA, the employing party decides how much money they want to invest in the plan, and the employee is then able to request reimbursement from their plan’s funds to offset their medical costs as they accrue them. Employees are not able to adjust this amount in any way, as it’s left entirely to the discretion of local government regulations and employer preference. Additionally, Employees are not able to withdraw money from their HRA ahead of time to cover any medical expenses. Rather, they must first incur the expense, then put in for reimbursement where appropriate.
Among the many options an HRA will reimburse include the following covered medical expenses:
- Prescription Medications
- Insulin
- Annual Exams
- Crutches
- Birth Control Pills
- Food Expenses during Treatment at a Medical Facility
- Substance Abuse Treatment
- Transportation Costs Associated with Medical Care
- Care from a Psychologist
- Dental Insurance Options
- Vision Insurance Options
As to limitations, HRAs are only able to cover those medical expenses specifically permitted by your plan type. Typically, these do not include general maintenance expenses such as vitamins or supplements not required by an employee’s physician, funeral expenses, or cosmetic procedures including dental whitening. This means that even if an expense is qualifying according to the IRS, the employer still has the right to exclude its coverage from its policy and prevent employees from being able to receive reimbursement for the expense.
Additionally, the plan fund limit for employees must be the same throughout the company provided the employees are in the same class. And it’s important to note that an HRA is not a portable benefit. This means that it cannot transfer with an employee if they choose to leave the company, even if they still have funds available for use.
HRAs and Tax Deductions
Employers can claim tax deductions on any reimbursements they may make to their employees through an HRA. And when the employee receives reimbursement funds, they are typically tax-free. This is beneficial to both employer and employee because they’re able to use more of the money they earn rather than sending larger portions off in tax repayments.
Types of Health Reimbursement Arrangements
There are a few different kinds of health reimbursement arrangements available to employers today, and each comes with its own benefits and disadvantages. Let’s look at a few of the most common HRAs to see how they work and what situations they would be most appropriate for.
Qualified Small Employer Health Reimbursement Arrangement
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a type of HRA that typically is applied to businesses that have less than fifty full-time workers in their employ. It serves as a health care option for those employees and can work to offset medical costs and, in some cases, insurance premiums.
For the 2022 tax year, QSEHRAs can reimburse tax-free, tax-deductible money in amounts up to $5,450 for individuals and $11,050 for families.
Individual Coverage Health Reimbursement Arrangement
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a newer HRA type that works to replace group health insurance options in some instances. Under this policy, employees are permitted to use their HRA funds to purchase their own preferred individual healthcare plan types with pre-tax money. And similarly to other arrangement options, employees may still choose to use this money to cover assorted healthcare expenses including copayments and deductibles.
Excepted Benefit Health Reimbursement Arrangement
In an Excepted Benefit Health Reimbursement Arrangement (EBHRA), employers are free to offer their employees group health insurance plans with the added benefit of up to $1,800 per year in reimbursable medical expenses through their EBHRA. Additionally, even if employees choose to opt out of provided group healthcare coverage options, they are still able to use the funds provided in this arrangement to purchase short-term health insurance and other qualifying medical insurance types.
Find Your Perfect Policy at Beckham Insurance Group
We hope you found this guide to health reimbursement arrangements helpful! As you can see, these arrangement policy types are beneficial to both employers and employees. If you’re interested in learning more, contact our team at Beckham Insurance Group. With progressive technology, game-changing financial solutions for employees, and high-level customer service, our team is here to navigate the complicated world of employee benefits for you.
