A Health Reimbursement Arrangement (HRA) is an employee benefit plan designed to help offset medical expenses incurred by the employee. HRAs vary greatly in design, but are basically developed to cover the expenses not covered by group health or supplemental plans.

HRAs can vary greatly in design. For example, one HRA can be designed to cover all or a portion of the deductible and co-pays on your health care plans on High Deductible Health Coverage (HDHC), while another can be designed to reimburse the employee for dental and vision expenses. It just depends on your goals in providing employee benefits.

An HRA can be "linked" or "unlinked." A linked HRA is tied to a health plan; the employee has to participate in the health plan to be eligible for the HRA. An unlinked (or stand-alone) HRA is set up to pay certain expenses, such as dental or vision expenses, without any connection to an insurance policy.

Why are HRAs becoming so popular?

An HRA has become popular because of their success when designing a benefit package which provides quality health care within a manageable healthcare budget.

The regulations provide you with the flexibility you need to tailor an HRA to your budget while fulfilling the needs of your employers.

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Why would an employer offer an HRA?

Employers today are being faced with a tough decision— increase the cost of health care to their employees or decrease the amount of health coverage.

Neither option is desirable. An HRA can be a powerful alternative. The employer can purchase high deductible health coverage providing quality coverage at an affordable rate and then subsidize the employee's out-of-pocket expenses through HRA funding.

The employer saves money while the employees still have affordable health care.

This creates a more stable healthy environment while making good financial sense. The employer provides health coverage to the employees at a rate that all can afford with added choices and control for the employee.

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FSA vs. HRA - What is the difference?

There is a common misconception that an HRA is simply an FSA without the use-it-or-lose it rule. While on the surface that may seem so, it is definitely not true.

.Following are the primary differences:

• No employee contributions.  An HRA is funded solely by the employer. No employee contributions are allowed.
  
• No use-it-or-lose rule.  When an employee participates in an FSA, the employee needs to be careful in estimating expenses because if the employee does not use all the money, the remainder will be forfeited at the end of the plan year. In an HRA, the employer has the option of letting the employee carry-over all or a portion of the unused funds.
  
• No uniform coverage rule.  In an FSA, the entire election amount is available for reimbursement on the first day of the plan year. However, in an HRA, the employee can only be reimbursed for the amount the employer has contributed to date less any prior reimbursements. The employer has the option of contributing monthly, quarterly, or annually.
  
• No mandatory twelve-month plan year.  While most employers will have a twelve-month coverage period, it is possible to have a shorter coverage period.
  
• No requirement that expense must be incurred during plan year.  The regulations do not require the expense to be incurred during the plan year; but the employee must have been a participant in the HRA when the expense was incurred. However, the employer has the option of allowing this or not.

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Why offer an HRA in addition to an FSA?

Employees cannot contribute to an HRA, and typically expect to have more expenses than can be reimbursed from the HRA. By offering an FSA in addition to the HRA, the employees will be able to set aside tax-free funds to pay for these additional medical expenses.

An FSA is very beneficial for employers. Any time an employee saves on payroll taxes, the employer has corresponding savings.

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Can an employer offer more than one HRA?

Yes, an employer can offer as many HRAs as needed. The plan documents can set up a Health Plan Arrangement with one or more underlying HRAs.

Here are two examples of multiple HRAs. The employer may choose to:

• Set up one HRA for deductibles and another for dental and vision expenses.
  
• Take the Defined Contribution approach when setting up their employee benefit package may offer their employees the choice of three health care policies with an HRA designed for each policy

These are just two examples of the multitude ways you can design an HRA.

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