What Is a Health Reimbursement Arrangement (HRA)?
Beginning in 2005, employers can reimburse their employees tax-free for almost any medical expense, including health insurance premiums. By setting up a Health Reimbursement Arrangement (HRA), employers can provide inexpensive health benefits to employees and allow their employees to choose health insurance suited especially to their needs.
HRAs provide the following advantages over traditional group plans:
- Choose your own policy—You can be reimbursed by your employer for your premiums with pre-tax dollars
- Get reimbursed for out-of-pocket expenses such as prescriptions, co-pays, etc.
- Qualify for an HSA and invest your savings by choosing a high-deductible individual or family policy that qualifies
The Old Way: Defined Benefit Health Plans
Traditionally, employers provide one group health insurance plan for all their employees. Because employers are required by law to provide all members of their group identical coverage, regardless of their health condition, these plans are becoming very expensive. Employees are frequently being asked to contribute to the cost of the plan, especially if their spouse or dependents are being covered.
The New Way: Defined Contribution Health Plans
With an HRA, each employee is given an allowance each month that they can be reimbursed from for almost any medical expense. You can use your HRA allowance to choose your own health insurance plan. If you are healthy, you can probably get health insurance for 1/2 to 1/3 the price of your employer plan.
Click here for more information about individual and family health insurance policies, including what to do if you have a serious preexisting health condition.