Does your employer offer a Health Reimbursement Arrangement (HRA)? If so, have you considered looking at your plan to see how these accounts can help you pay for healthcare costs?
What is an HRA?
An HRA (Health Reimbursement Agreement) is an employer-funded, tax advantaged employer health benefit plan that allows employees to pay for out-of-pocket medical expenses and individual health insurance premiums.
Section 105(h) of the Internal Revenue Code (IRC) allows employers to contribute tax-free funds to Health Reimbursement Arrangements (HRAs), also known as Health Reimbursement Accounts. These accounts help employees pay for certain healthcare expenses that are not covered by any other source such as co-payments, co-insurance, deductible, dental, vision, chiropractic care and more (be sure to check your HRA documents for specifics).
There are several types of HRAs employers can offer and each type has specific rules. Let’s explore some benefits of HRAs.
HRAs are funded entirely by your employer
HRAs are entirely funded by employers. Employees cannot make contributions to these types of accounts. Employers determine the amount and frequency of contributions. In addition, you don’t have to pay tax on the money that comes from an HRA. Knowing that tax-free money can be added to your HRA by your employer can remove some stress!
Contributions can roll over year to year
Many HRAs allow the money your employer contributes to be rolled over year to year. This allows your useable funds to grow, without having to worry about the money being lost if it isn’t used each year. Having these funds accumulate can help offset a catastrophic future illness or injury.
Of course, not all HRAs are created the same, so you’ll have to read carefully to make sure your specific account allows rollovers.
A high deductible health plan (HDHP) is not required
If your employer doesn’t offer a high deductible health plan, an HRA can be another way to save for healthcare costs. Typically, you must be enrolled in a specific health insurance plan through your employer to utilize the benefit. Employers determine the eligibility for receiving HRA contributions.
In addition, you can use HRA funds to pay for allowable “IRC 213” expenses (same as FSA allowed expenses) such as alternative treatments, Lasik eye surgery, weight loss programs to treat obesity and others.
Funds available from day one
Another great benefit of an HRA is that funds are available to use from day one if you need to pay for medical expenses immediately. You can use your funds when you need to without having a long waiting period.
If your employer offers an HRA, be sure to look over your specific plan and see how it can help you save for and pay for healthcare costs. As there are several types of HRAs employers can set up, you’ll want to make sure you read your paperwork very carefully to see what is included in your specific plan.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.