In this article, we'll provide an overview of healthcare benefit allowances. Health Reimbursement Arrangements (HRAs) and defined contribution health benefits are types of healthcare benefit allowances.
What is a Healthcare Benefit Allowance?
According to Investopedia, a benefit allowance is: "Money that a company or government agency provides to an employee for a specific purpose, such as transportation, healthcare costs or a flexible spending account. Benefit allowances administered to employees can be distributed through regular payroll."
Therefore, a healthcare benefit allowance is simply an allowance a company or organization provides to employees for healthcare expenses.
How Healthcare Benefit Allowances Work
Employers can use a healthcare benefit allowance to give employees flexibility in creating a benefits package that best meets their needs. Rather than imposing a particular healthcare plan on all employees, the employer could offer a healthcare benefit allowance (such as a Health Reimbursement Arrangement or HRA). Employees could use their healthcare benefit allowance for eligible medical expenses of their choosing, including:
A personal or family insurance plan that fits their specific needs
Supplemental coverage like dental or vision insurance, or coverage for dependents
Eligible out-of-pocket medical expenses such as doctor visit copays, prescriptions, physical therapy and emergency visits
Employer Control, Employee Choice
Healthcare benefit allowances give employers greater control over monthly health benefits costs, and give employees more choice in their health care coverage. With a healthcare benefit allowance, the employer sets their own parameters, including:
Which types of medical expenses to cover
Maximum contribution amounts
What happens to unused contributions
With healthcare benefit allowances, employees receive customized benefits to fit their needs, and employers can offer a competitive benefits package that will help recruit and retain top talent.