Health Reimbursement Arrangements – Introduction

Health Reimbursement Arrangements (HRAs) are a popular method to help employers control the cost of their health insurance plan while providing choice to employees.  Under an HRA, employers can set aside money for each employee to pay for certain health care expenses.   Typically, an HRA is used in conjunction with a less expensive higher deductible or co-pay health plan.   The higher deductible health care plan provides coverage in the event of a major illness or condition while the HRA provides employees some of the funds necessary to cover routine out of pocket expenses.

Features of an HRA

  • HRA funds are tax deductible to the employer
  • HRA funds are tax free to the employee
  • Employer can determine fund availability for specific benefits:  medical, Rx, dental, vision, etc.
  • Unused funds can roll-over at the employer’s discretion
  • There is no pre-funding requirement – an HRA is a pay as you go plan

The Advantages of an HRA

  • Implementation of an HRA with a higher deductible health plan will help reduce costs
  • Provides employee choice
  • Creates awareness of the cost of health care
  • Helps to control utilization
  • Provides the employer with a long term health care plan strategy

Employers with Group Health Benefits Plans

Increase the annual deductible, saving up to 50% on your next month’s premium. This can be done anytime during your plan year. Then use your payroll system to automatically reimburse employees for increases in medical expenses that employees incur due to the higher annual deductible. Overall savings should be 20% or more after paying reimbursements.

Employers may now use their existing payroll system to reimburse employees tax-free for medical expenses as incurred by the employee versus having to prepay such amounts up-front via mandatory contributions to a TPA, an HSA, or to higher group health insurance premiums.

Employers with group health benefits plans can save up to 50% on their monthly premium, starting next month, by increasing the annual deductible and using their existing payroll system to reimburse employees tax-free for their higher expenses due to the increased annual deductible. This typically saves employers about 20% overall after paying reimbursements. Employers can also customize their supplemental reimbursements by class of employee and add important categories of coverage such as wellness benefits.

Payroll-administered reimbursement plans, powered by Section 105 HRAs (Health Reimbursement Arrangements), are now offered by the leading payroll companies and by thousands of innovative health insurance agencies. Employers should avoid carrier-supplied HRAs because (1) they keep the employer from easily changing insurance carriers when prices are increased at renewal time, and (2) carrier-supplied HRAs offer very limited benefits.

Employers should also avoid setting up a separate third-party debit card system for reimbursements and simply reimburse employees using their existing payroll. There is no better incentive for employees to comparison shop than having them lay out their own funds, even if such funds are later reimbursed 100% by the company.

If your company has a group health insurance plan, speak to us or your agent about increasing the annual deductible and using your payroll to selectively reimburse employees for their out-of-pocket medical expenses.