Health Reimbursement Accounts (HRAs): Benefits & Drawbacks

A health reimbursement account is also known by many as a health reimbursement arrangement. No matter what you call this type of account, there are pros and cons to getting involved. While these accounts are not right for everybody, many people have benefited from them in the past and continue to do so. A health reimbursement account is an IRS program in which employers are allowed to reimburse employees for medical expenses. This provides tax benefits that can help to offset the overall cost.

Health Reimbursement Account Details

The IRS clearly states that a health reimbursement account must be fully funded by the employer. Contributions are not allowed to be made through any type of arrangement with employees. While the employer is the one that initiates the health reimbursement account, there is a third party company that acts as an administrator. From an employer’s point of view this makes the process of offering a health reimbursement account much easier.

Pros of a Health Reimbursement Account

The number one benefit of a health reimbursement account for the employer is that reimbursements of claims are tax deductible. Because of this, they are able to offset the overall cost of offering health care coverage to employees. This is not a benefit that the employee will ever see. The employer will be able to save money. On the employee side of things, unused funds in a health reimbursement account are often allowed to carry over to the following year. This is a big benefit because you are not forced to seek care, or lose the money, by the end of the year.

Unlike a health savings account, for example, employees do not have to be enrolled in another health care plan in order to take full advantage. Regardless of your current health coverage situation, if your employer offers a health reimbursement account you can get involved.

Cons of a Health Reimbursement Account

One reason why many companies do not offer a health reimbursement account is that there are too many provisions and rules in place. Despite the potential benefits, they are unsure of how these accounts work and whether they qualify. The only good thing about this is that a third party administrator can often time answer all applicable questions.

Also, it is important to note that self employed professionals are not allowed to open a health reimbursement account. Along with this, employees who earn a high level of income may run into some limitations in terms of what they can contribute. Whether  you are an employer or employee, it is important to know the pros and cons of a health reimbursement account. There are advantages and disadvantages for both parties involved.