4 HRA Benefits for Workers: Why Employees Love HRA
A Health Reimbursement Arrangement (HRA) is an employer-funded account reimbursing employees for medical expenses and sometimes insurance premiums. HRAs are becoming increasingly common as more employers are seeking alternatives to traditional health benefits.
Employers find many benefits in offering HRAs, such as cost control and tax advantages. They also appreciate the risk mitigation and the ability to customize plans for their company.
But what about employees. Are HRAs as beneficial for workers as they are for businesses?
Whether you’re a business owner or an employee, you’ll be happy to know that HRAs are a win-win situation for both employer and employee. Below, our experts explain the four main advantages of HRAs for employees.
4 HRA benefits for employees:
1. HRAs Provide Tax-Free Reimbursement
Unlike an HSA, an HRA is solely for reimbursing medical expenses; employees cannot directly withdraw funds. Instead, they pay out of pocket for healthcare costs and then request reimbursement for qualifying expenses up to a predetermined amount.
When an employee files a claim for a qualified medical expense, the reimbursement is 100% tax free. Because the reimbursements occur pre-tax, HRAs can help employees and employers save up to 50% in combined taxes on the cost of medical expenses!
2. HRAs Don’t Affect Employees’ Income
Employer reimbursements for medical expenses via an HRA are not taxed if used for qualified expenses. This policy ensures the money benefits the employee’s healthcare needs without tax implications.
As an employee, you don’t have to report your HRA participation on your tax return. The contributions do not count toward your gross income. Basically, part of your job compensation is free healthcare!
3. HRAs Provide Personal Healthcare Freedom
When a business offers a traditional group insurance plan, it’s unlikely to meet all employees’ unique healthcare needs. With HRAs, individuals have greater choice in their healthcare services, with the ability to choose care that suits their lifestyle, preferences, and budget.
If you’re an employee and your employer is switching to an HRA, it means you will not only have the flexibility to find an individual health plan that fits you best, but also to be reimbursed for it! HRAs provide a truly customizable alternative to traditional group health insurance plans.
4. HRAs Offer Lower Healthcare Costs
Employees can use HRAs to be reimbursed for qualified medical expenses their health insurance doesn’t pay for, such as medical and pharmacy expenses they must pay out of pocket before meeting a deductible, as well as coinsurance that applies after meeting a deductible.
Since employees are using tax-free dollars to cover these and other qualified healthcare costs, participating in an HRA can help employees access their preferred healthcare at lower costs overall. Who doesn’t want and need more affordable healthcare?!
A few final notes on HRAs:
- An HRA is not health insurance. Instead, employers offer employees a monthly allowance of tax-free money to cover healthcare costs.
- HRAs have gone through a lot of regulatory changes since their introduction in the 1970s!
- HRA-eligible expenses include, but may not be limited to: individual health insurance premiums, individual dental or vision premiums, amounts paid towards a policy’s deductible, copays, office visits, prescription drugs, nonprescription drugs with a doctor’s note, and mileage for eligible healthcare travel.
At Benafica, we believe HRAs are a game changer because they empower employees to be their own advocates when it comes to their healthcare. However, HRAs can vary significantly from one employer to the next in terms of how much coverage they offer and which expenses will be reimbursed, so it can be tricky to understand your coverage.
Contact our experts today for free guidance about HRAs and other employee benefits!
Unlike an HSA, an HRA is solely for reimbursing medical expenses; employees cannot directly withdraw funds.
