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Health Reimbursement Arrangements (HRAs)

Health reimbursement arrangements (HRAs) are employer-funded health care accounts that reimburse employees for their eligible out-of-pocket medical expenses on a tax-favored basis.

Beginning in 2014, the Affordable Care Act’s (ACA) market reforms substantially limited the types of HRAs that employers could offer. Due to these reforms, most stand-alone HRAs are currently prohibited, although HRAs that are “integrated” with other group health coverage are still permissible. Also, effective for 2014 plan years, employers cannot use HRAs to reimburse employees for individual health insurance premiums without violating the ACA.

Due to a new federal law, small employers can adopt stand-alone HRAs without violating the ACA, effective for plan years beginning on or after Jan. 1, 2017. This new type of HRA, called a qualified small employer HRA (QSEHRA), can be used to help employees pay for their own health insurance policies and reimburse other out-of-pocket medical expenses. 

HRA Plan Designs

HRAs are employer-funded health care reimbursement plans that receive favorable tax treatment under the federal Internal Revenue Code (Code). Typically, employers that sponsor HRAs establish unfunded “bookkeeping” accounts to reimburse eligible employees for substantiated medical expenses that are not covered by health insurance, such as deductibles and copayments. HRAs are often paired with group health plans that have high deductibles in order to help employees pay for the out-of-pocket medical expenses that they incur before meeting the group health plan’s out-of-pocket limits. Although employers have some HRA plan design options available to them, there are specific rules regarding eligibility, contributions and reimbursements. Also, the ACA’s market reforms have substantially narrowed the types of HRAs that are permitted under federal law.

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