What is a Health Reimbursement Arrangement?
A health reimbursement arrangement (HRA) is a legal plan that reimburses employees for qualified medical expenses up to an IRS approved amount. The reimbursements are deductible by the company. The HRA must be funded solely by an employer. The contribution cannot be paid through a voluntary salary reduction agreement on the part of an employee. Employees are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period. I highly recommend that companies use an HRA benefit company to administer the plan to keep compliant with all the IRS, ERISA, HIPAA, COBRA, and ACA requirements. Regardless of whether the company uses a third-party administrator or attempts self-administration, the plan must be written, legal and non-discriminatory.
How it works
• Each employee keeps track of their monthly premiums and out of pocket expenses.
• These are then submitted to the plan administrator each quarter.
• The employer will submit an annual form to the HRA benefit company with each employee’s yearly total of expenses.
• Employees will get a reimbursement for qualified expenses not exceeding the IRS maximum amount. .
• These reimbursements are NOT subject to Medicare and Social Security withholding.
• The reimbursement will be reported on your paystubs and your W2 at the end of the year.