Health Reimbursement Account (HRA) - Explained
What is an HRA?
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Table of ContentsWhat is a Health Reimbursement Account (HRA)?How is a Health Reimbursement Account (HRA) Used?Academic Research on Health Reimbursement Accounts
What is a Health Reimbursement Account (HRA)?
A health reimbursement account (HRA) is a health coverage or health benefit plan that is approved by the Internal Revenue Service (IRS). It is a health plan that allows an employer to fund and reimburse employees medical expenses that are not under company-sponsored insurance. HRA is called an employer-funded plan because it allows reimbursement for employees who pay medical expenses from their pockets. Reimbursement received by employees under this arrangement is not subject to taxation. Under HRA, employers in certain cases, are expected to cover expenses of health insurance premiums of their employees.
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How is a Health Reimbursement Account (HRA) Used?
A health reimbursement account can also be referred to as a health reimbursement arrangement. It is a health plan organized by an employer to cover health expenses for members of his staff. Also, in cases where employees pay for medical bills out-of-pockets, they are required to get a reimbursement for the employer. A health reimbursement account is not funded through employee salary deduction scheme but it must be paid by the employer. There is a specified amount of money that an employer allocates for the medical expenses of each employee annually. If peradventure, an employee exhausts his allocated fund before the end of the year, all medical bills for the remaining period will be paid by the employee. Health Reimbursement Account Coverage According to IRS, there are certain limits to the coveragae of HRAs. HRAs only cover medical expense (dental and pharmaceutical expenses included). Also, transportation to a medical facility, premiums for health insurance policies, money spent on medical consultation and LTC are covered by HRAs. However, there are certain medical expenses that are not covered by a HRA, for instance, annual physical examination, meals eaten while at a medical facility, contraceptives, psychiatric care, are not covered by HRAs. Despite that there are qualified medical expenses outlined by IRS, some companies may choose to remove certain medical expenses from their HRA plans. Furthermore, health club membership fees, teeth whitening and childcare for a healthy bay are not covered under HRAs. Generally, a HRA is regarded as a tax-advantaged health benefit, this is because money that employees get from this health plan is tax deductible. HRAs are fully funded by employers and not the employee salary deduction schemes. Employees use their HRAs to settle quite a number of medical expenses that are not covered by their personal health insurance policies. A HRA is not a health insurance but employees can derive a number of insurance benefits from this plan. Some employees also use HRAs to cover medical expenses of retired employees. HRAs are not subject to tax, this also indicates that no income tax deductions can be claimed on reimbursed health care bills. Employees do not pay tax on both FSA and HRA. A FSA is a type of an employee puts money into ans uses for out-of-pocket medical expenses. If an employee has both FSA and HRA, and wants to be reimbursed for a medical expense cannot choose any of the accounts, rather, the employer makes repayment into the account which is set up for the purpose, usually a HRA. Employers have fixed amount they allocate to each of their employees annually, an employee can u=either use up the amount or have some remainder. In cases when there is an unused fund in HRA, it can spill over to the following year.
Academic Research on Health Reimbursement Accounts
- [HTML]Consumer-directed health care: will it improve health system performance?, Davis, K. (2004). Health Services Research, 39(4 Pt 2), 1219.
- Awakening consumer stewardship of health benefits: prevalence and differentiation of new health plan models, Rosenthal, M., & Milstein, A. (2004). Health Services Research, 39(4p2), 1055-1070.
- The impact of a worksite health promotion program on short-term disability usage, Serxner, S., Gold, D., Anderson, D., & Williams, D. (2001). Journal of Occupational and Environmental Medicine, 43(1), 25-29.
- How do consumer-directed health plans affect vulnerable populations?, Haviland, A. M., Sood, N., McDevitt, R., & Marquis, M. S. (2011, April). In Forum for Health Economics & Policy (Vol. 14, No. 2). De Gruyter.
- Health Savings Accounts and Other Account-Based Health Plans, Fronstin, P. (2004). EBRI Issue Brief, (273).
- The effect of consumer-directed health plans on the use of preventive and chronic illness services, Health benefits in 2006: premium increases moderate, enrollment in consumer-directed health plans remains modest, Claxton, G., Gabel, J., Gil, I., Pickreign, J., Whitmore, H., Finder, B., ... & Hawkins, S. (2006). Health Affairs, 25(6), w476-w485.
- High-deductible health plans and the new risks of consumer-driven health insurance products, Committee on Child Health Financing. (2007). Pediatrics, 119(3), 622-626.
- Consumer-directed health plans: new evidence on spending and utilization, Feldman, R., Parente, S. T., & Christianson, J. B. (2007). INQUIRY: The Journal of Health Care Organization, Provision, and Financing, 44(1), 26-40.
- Do consumer-directed health benefits favor the young and healthy?, McNeill, D. (2004). Health Affairs, 23(1), 186-193.