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The Health Reimbursement Arrangement or HRA is a tax-advantaged system that reimburses individuals who pay for medical expenses directly and those who pay for premiums for healthcare insurance policies. HRA is an approved process by the IRS, which is funded by employers.
It is imperative to know that HRA is essentially not a healthcare insurance policy. It is a system that allows workers to receive a monthly amount from their employers that are free of tax deductions. Therefore, the system allows workers to purchase the healthcare insurance (or healthcare services) that they require and receive reimbursements from their employers up to an allowance limit per employee.
HRA is a system for employers that want their staff to enjoy healthcare insurance benefits for several medical services that may not be covered by an insurance policy. As such, HRA is perfect for small institutions that cannot afford a large healthcare insurance policy for their staff. Such organizations set aside healthcare allowances that allow their employees to enjoy the benefits of having healthcare insurance policies.
With HRA, reimbursements are dispensed directly to employees when the cost of medical expenses is approved. This process keeps the business in control of how they spend their resources. The basic process of a typical HRA is stated below.
A business can reimburse any medical expense as long as it is covered under the IRS code that governs internal revenue. Along with medical expenses, premiums for healthcare insurance policies also qualify for reimbursement. Other expenses that qualify for HRA reimbursements include:
Different types of HRS plans might have different restrictions, usually depending on the business’s policy. For example, one company can offer reimbursements to service premiums while another may choose to offer reimbursements for deductibles.