Healthcare is an expensive necessity. The good news is there are many options to help ease the burden on your pocketbook. One option to consider is a Health Reimbursement Arrangement (HRA), also known as Health Reimbursement Account.
What is an HRA?
An HRA is an employer-funded 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 an HRA. 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).
While HRAs are not health insurance, they can be used alongside your plan to help offset your individual costs. Let’s look at a few reasons to consider getting an HRA if you are eligible and your employer offers this benefit.
Some types of health care spending accounts have strict contribution limits, however, HRAs do not. Although only employers can contribute to this type of account, it’s nice to know they have no preset limits.
Of note, a new type of HRA, the Qualified Small Employer HRA (QSEHRA) does have contribution limits, up to $5,050 for individuals and $10,250 for families. Be sure to know exactly what type of HRA your employer offers.
Encourages Self Care Through Health Spending
HRAs do not roll over year-to-year and you lose them if you leave the company, are fired, laid off or retire. Though this seems gloomy, some argue that HRAs actually promote self-care. As HRA funds cannot be rolled over or kept indefinitely, you know you have to utilize the benefit. The hope is you’ll schedule those appointments you’ve been putting off and seek the care you need rather than saving the money.
Fewer Eligibility Restrictions
Other popular healthcare saving options such as Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA) come with several eligibility requirements. A few examples include HSA members cannot have other non-HSA health plans, cannot be claimed as a dependent on someone’s tax return, and cannot have a standard flexible spending account along with their HSA.
HRAs do not have nearly as many restrictions and should be considered if you find yourself ineligible for the other options, but your employer ultimately has to make this call.
Available with More Types of Insurance Plans
Another reason HRAs make sense for many people is that they can be utilized with more insurance plan types. Unlike HSAs that can only be used with high deductible health plans, HRAs have a bit more flexibility. The Affordable Care Act (ACA) allows HRAs to be offered as long as they are integrated with a group health plan, which opens up more ways to offer this benefit.
If your employer offers an HRA, take some time to explore the benefits. It is another way to help save for those inevitable health care costs.
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.