Health Reimbursement Arrangement (HRA) - ByteScout

Health Reimbursement Arrangement (HRA)

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.

Health Reimbursement Arrangement (HRA)

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.

How it Works

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 sets up the allowance limit for each staff by keeping a tax-free amount, which is the maximum sum the company is willing to reimburse each staff per month.
  • Next, each staff selects the range of healthcare services that they require, which can include healthcare insurance policies if the company’s allowance limits permit.
  • When a member of the staff makes a purchase or enjoy a healthcare service, he or she submits documentation that reveals the exact cost and details of the services received. These documents are essential as they allow the employer to determine if the expenses qualify for reimbursement or not. Additionally, documentation submitted usually come as receipts or any format the employer deems suitable.
  • The business then reviews the documents submitted by the staff to determine the costs, the details, and the date when the healthcare service(s) was accessed. This process allows the employer to either approve or reject the expenses accordingly.
  • If the expenses are approved, the employer reimburses the staff from the earmarked allowance. This process continues until the monthly limit is reached. After this limit, the employer would not reimburse expenses anymore until a new month begins.

HRA Reimbursements

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:

  • Prescription medication,
  • Payments towards deductibles for insurance policies,
  • Consultations,
  • Over the counter medication,
  • Copays,
  • Traveling health insurance.

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.