How Health Reimbursement Arrangements Work
Health reimbursement arrangements are employer-provided benefits. They help employees cover health care expenses that are not covered by Affordable Healthcare Act plans. In this article, we will go over the basics of how HRAs work.
HRAs are funded entirely by your employer. HRAs are not accounts, rather they are an agreement between you and your employer that they will reimburse you for qualified health care costs. You cannot invest the amount your employer funds into the HRA, nor can you allow it to earn interest. However, your balance may roll over from year to year, if your employer continues to offer HRAs.
You can opt-in to participate in an HRA during the open enrollment period held by your employer. However, for certain qualifying events, you may be able to sign up outside of the enrollment period. Spouses and children covered under your employer’s health plan are also eligible for participation in Health Reimbursement Arrangements.
It will be up to your employer to choose the expenses that you can receive reimbursement for. However, they can only be expenses that are in IRS publication 502. Your reimbursements are for expenses that your insurance does not cover. This includes out-of-pocket expenses you incur before you meet your deductible. The amount of reimbursement you will receive will depend on your employer. Some Health Reimbursement Arrangements are very flexible whereas others are more restrictive.
To receive your reimbursements, you may have to provide your employer with a bill from your health care provider. Your employer may choose to reimburse on a monthly or an annual basis. The maximum amount that you can receive back is set out by your employer.
Reimbursements are not taxable income and do not go on your tax return if they go towards qualified medical expenses. However, if your employer pays out any unused portion at the end of the year or when you leave your job you must report it as taxable income.
Special Rules for Small Businesses
There are special rules that apply to qualified small employer health reimbursement arrangements. These are for businesses that have less than 50 full-time employees. The plan must be available to all employees unless they are new, part-time, or seasonal. A QSEHRA may reimburse up to $4,950 a year for a single person or $10,000 for a family. The employer must contribute the same amount to all plans. However, there is an exception if there are differences in premiums based on age or the number of family members covered.
This article is a broad overview of health reimbursement arrangements. What you can expect will differ greatly from employer to employer. For specifics, you will want to read your summarized plan description or contact your plan administrator.
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