HRA stands for health reimbursement account or arrangement. In the case of accounts, HRA accounts are funded by employers to reimburse employees for their medical expenses. Employers set and determine medical expenses that the organization will cover beforehand. It is tax-free, and a set amount of money is set annually.
What is Included in HRA Plans?
The following things should be included in HRA plans and are ordinary expenses in HRA plans:
Routine visits to doctors
General hospital-related expenses
How Do HRAs Work?
The employer sets the amount of money allocated to the plan, and the employee may seek reimbursement for qualified medical expenses up to the specified amount. Employers may deduct reimbursements under these plans from their taxes, although employee reimbursements are usually tax-free.
Employers set up the account
Employers provide funds that are free from tax.
An amount of money is set annually and how unused funds work depends on employers
HRAs cover medical expenses for spouses and dependents
HRAs don’t cover costs other than the outlined expenses.
Advantages of HRA
Both employers and employees are benefitted from HRAs. Here are some of those advantages:
Free from tax
Acts as an incentive for employees
It can be integrated with FSA
Employees can avail funds automatically and quickly.
HRA vs HSA
A health savings account (HSA), as opposed to an HRA, is a tax-advantaged account whose funds cannot be lost if they are still at the end of the year. To pay for medical and dental expenses, a high-deductible health plan (HDHP) and a health savings account (HSA) work together. The account may be funded by either the employee or the company, just as an FSA cannot be used to pay for insurance premiums.
Employees may keep their HSAs even if they change jobs, unlike HRAs and FSAs.