In the world of consumer directed healthcare, first there was the MSA, then the HRA and finally the HSA. Today the HSA is king of the mountain, but for savvy employers across the country, the HRA is a tool that helps them manage their health care costs.
The Health Reimbursement Account (HRA) has its similarities and differences with the HSA, and the biggest difference is there is no cash in an HRA. No real account that the employee can take with them. HRA’s are notional accounts – simply a balance that is tracked usually by a professional administrator.
Here are the key features of an HRA:
- Employers fund claims to an HRA as they come – they do not setup bank accounts and provide employees with cash.
- Qualified expenses to an HRA include anything covered under Section 213(d) of the IRC – which means anything that you can cover under an HSA
- There is one expense you can fund in an HRA, which you cannot fund in an HSA – Premiums for Individual Health Insurance Plans!
That is what is making the HRA a secret weapon for smart agents across the country. The employer can fund individual health insurance plans rather than setup a group plan by using an HRA. So…
- The premiums are deductible to the employer
- The premiums come to the employee on a tax free basis
- The employer can establish a fixed amount that they will contribute to the HRA (which they do not actually contribute until there are claims made) and the amount can be different for single employees and family employees.
- The employer can even setup different classes of employees and setup different contribution levels within the classes subject to discrimination testing.
HRA’s are a powerful tool that can help you sell more by bringing creative solutions to small businesses in your area.