It seem as if the health care industry is becoming like the defense industry with acronyms and initials identifying products and programs. Without a code book you most likely miss a lot of what the discussion is about, For instance, a short while back I said I would write about HRAs. Maybe you thought I was going to write about a Health Reform Act, or Health Related Adjustments. No, I am going to tell you about Health Reimbursement Accounts. Oh, you already have a Health Savings Account – no matter, this is very different. But I will talk about the HSA in an upcoming article.
What is a Health Reimbursement Account?
It is an account set up and administered by employers to reimburse employees for eligible health related expenses. Money given to employees for reimbursable expenses are tax-free. It operates exactly like an expense account for business purposes only it reimburses for health care expenses.
It is not health insurance though! It is a program that needs IRS approval for the employer to set up. Your employer funds it and it is considered a tax advantaged employer health benefit plan designed only to reimburse employees for out of pocket health expenses. It is not health insurance. Though it may allow you to pay for some or all of your health insurance premiums if they are an eligible expense.
A health reimbursement account (HRA) is a great way to give employees healt benefits beyond standard health insurance and to pay for many health care expenses that insurance does not cover.
An HRA is a notional account. This means that you must first pay the expense and then submit it to your employer for reimbursement. It is actually nothing more than an agreement between you and your employer; no money is expensed until reimbursement is made to you. Reimbursement is paid directly to you only after you have incurred an approved medical expense.
Another feature of an HRA is that the amount of money that can be paid to you is unlimited as long as it is for a qualified expense under IRS Section 213 of the Code. Eligible expenses include insurance premiums for personal health insurance policies. In additon, although the list of approved expenses by the IRS is long, your employer may choose (restrict) what is on their approved list. Most Health Reimbursement accounts pay for things so as:
Doctor office visits
These are examples of some reimbursable health care expenses. Check with your human relations office for a complete list of covered expenses.
The law allows Health Care Reimbursement Accounts to roll over from one year to the next. But, employers can elect not to include this and what is not spent can be paid back to the employer and the employee loses it. Restricting or eliminating the roll over feature disallows a key advantage to the HRA program – the ability to access the program after retirement. While retired employees can access their account as long as there are funds in it, employers may not distribute cash or other monetary benefits to any employee.