Flexible Spending Accounts, Health Reimbursement Accounts- Employee Benefit Administrator

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Health Reimbursement Arrangements

A Health Reimbursement Arrangement (HRA) is an account authorized under Section 105(h) of the Internal Revenue Code. (and further defined in 2002 by Revenue Ruling 2002-41 and notice 2002-45) An HRA is a self-funded deductible account that enables employers to purchase high deductible health insurance policies, and self-insure a portion of the deductible so that employees are exposed to a more traditional deductible amount. Employers can deduct the self-funded part of the plan from taxes and it is a tax free benefit to the employee.

Why should you consider an HRA?

Employers use HRAs as a means to offset the extra costs they ask employees to incur when they switch to a cost-saving health care plan. The HRA fills the financial gap employees would have had to otherwise fill. The result? Employees don’t see the change you make in their health benefits plan as a financial loss. Better still, once employees start using the HRA, they quickly learn the cause and effect of their health care choices–the wiser the choices, the more money stays in their account. They learn the true cost of health care, creating a long-term contribution strategy.

Since the coverage is considered fully insured, there is no claim liability other than the agreed upon HRA amount in the beginning of the plan year. Your company could see the maximum savings of 100% if HRA funds are not fully utilized by the covered employee. By processing the deductible amounts, using the IRS Section 105 (HRA), combined with the normal health plan carrier's discount contract will normally give the employee a 20% to 40% discount off of the retail cost of medical services they would not normally experience.

If the employee utilization is within the national average, then the employer can expect to save 20% - 40% or more off of their current premium costs.