Health Reimbursement Account

Health Reimbursement Accounts, or Health Reimbursement Arrangements, (HRAs) are IRS-sanctioned arrangements that allow an employer, as agreed to in the HRA plan document, to reimburse for medical expenses paid by participating employees. HRAs reimburse only those items (copays, coinsurance, deductibles and services) agreed to by the employer which are not covered by the company's selected standard insurance plan (any health insurance plan, not only high-deductible plans). These arrangements are described in IRS Section 105.

Qualified claims must be described in the HRA plan document at inception, i.e., before reimbursing employees for those medical expenses. Arrangements (medical services, dental services, co-pays, coinsurance, deductibles, participation) may vary from plan to plan, and an employer may have multiple plans in place, allowing much flexibility.

The employer is not required to prepay into a fund for reimbursements, instead, the employer reimburses employee claims as they occur. Reimbursements of qualified claims are tax-deductible for the employer.

Reimbursements claimed by the employee are tax free (not included in W2 earnings), provided they are tied to qualified health care expenses (as defined in Section 105). HRAs are initiated by the employer and serviced by a third-party administrator or plan service provider; the employee does not pay for the right to participate. The employer may provide in the HRA plan document that credit balances in an employee's HRA account can be rolled over from year to year like a savings account. The employer decides if the funds are rolled from year to year and how much rolls over (which can be either a flat amount or a percentage).

A frequent complaint regarding HRA arrangements is that they are extremely opaque in regards to their requirements. Rules pertaining to their reimbursements are perceived by member participants to be somewhat contradictory and/or even incoherent- leading some to lose contributions which are intended for healthcare but are learned (after the procedure or laboratory test) to be disallowed.

Complaints pertaining to HRA management are dealt with thru ERISA channels.

Three parts

An HRA plan has three parts, a
* 1) set yearly amount given by the employer, (for example could be $500 or $1000) This is money the employee can spend completely, no deductible.
* 2) bridge amount, (for example could be $500 or $1000) This is money the employee has to pay out of pocket.
* 3) traditional insurance plan. Typically those amounts will be $500, $500 and 90% respectively.

Thus the employee can use the first $500 and pay nothing out of pocket, then spend the next $500 completely out of pocket, then be covered by the traditional insurance plan. If the first $500 is unused at the end of the year it is then rolled over to next year.

For example, Willy who works for a HSA-providing employer will only use about $200 for the first year. Next year he will have $800 in his HRA account.

First year HRA account: $500 First Year Spent: $200 First year rollover to next year: $300 Second year HRA Account: $800 Second year spending: $14000 (major surgery, let's say) Second year HRA contribution: $500 Second year HRA toward bridge: $300 Second yr Bridge paid by Willy: $200 (now the first part and second part have been exhausted, the coverage kicks in) Second year paid by traditional coverage: $12000 (Coverage might pay only 90% or 100%, Willy would have to pay the difference here)

See also

*Consumer driven health care
*Consumer driven health plan
*Flexible spending account (FSA)
*FSA debit card - Debit cards issued with HRAs fall under the same restrictions as FSAs.
*Health Savings Account (HSA)
*Medical savings account (MSA)