Advantages of HRAs
HRAs are a great option for employers and employees because of the tax advantages and benefits in how healthcare expenses can be paid. Employer reimbursements for qualified healthcare expenses are tax-deductible for the employer and tax-exempt for employees in the HRA. For groups of less than 100 employees, there is no IRS reporting requirement. Groups of 100 employees or more are required to complete and file form 5500.
In addition to these benefits, employers choose HRAs because they have broad latitude to establish the rules for contributions and reimbursements. They can change the rules as business conditions dictate. For example, employers can choose:
- How much to reimburse, in what amounts and in what order. They can decide if they or the employee will pay first.
- When to reimburse. Employers can decide to fund monthly, quarterly or annually and in which plan year. They can also set a funding limit so that additional funding isn't allowed until the account balance falls below the limit.
- What to reimburse – just the deductible or a broad range of healthcare expenses defined in Section 213(d) of the IRS code.
- If funds will rollover to the next plan year.
- Who to cover – employees only or employees and their dependents.
- What health plans to combine with an HRA – carrier approved HMOs or traditional and high deductible PPOs.
Regardless of the employer rules, employees enjoy the benefits of reduced out-of-pocket expenses!