What is an HRA?

You'd think that with all the talk of HRAs on this blog, we would have actually written a post about the basics of what an HRA is.  Well, better late than never.

As you know, If you want real details (like links to tax code and the like) Rick is your go to guy.  Sadly, you don't get Rick today.  You get me.  That means you're going to get a basic overview of how HRAs work followed by some arbitrary opinions.

What is an HRA?

HRAs seem incredibly complicated, but they're actually really simple.  An HRA, or health reimbursement arrangement, is really just an system that allows employers to reimburse employees for medical expenses tax-free.  Here's the basic steps:

• The employer chooses monthly allowances for the employees.  These allowances can be different based on the job function of each employee.  This allowance isn't actually paid to the employees yet.

• Employees pay for their own medical care.  This can be a doctor visit, individual insurance, prescription medicine, or a number of other qualified expenses.

• The employer repays the employees up to the amount of their allowances.  Allowances build up from month to month assuming the employee isn't spending the full amount.

It's really that simple.  The thing that sometimes makes HRAs complicated is that employers can customize all kinds of things to make the plan fit their situation.  For example, if an employer only wants to reimburse for dental expenses, an HRA can support that.  HRAs can also have deductibles, coinsurance, first-dollar coverage, and all kinds of other crazy options.

We go over more advanced uses of HRA Administration in detail in other posts on this blog, but all you really need to know is that employees pay their medical costs and the employer pays them back.  It's that simple

Note: This should not be taken as legal or tax advice.