Health expenses comprise a huge majority of people’s yearly spending. Health plans, however, do not cover each and every health care expense that a person incurs. But there are a variety of ways in which employers can assist their employees in paying for their health-related expenses, one of which is the use of reimbursement health plans.
Definition
Reimbursement health plans, also known as health reimbursement arrangements (HRA), or personal care accounts, are a type of health insurance plan that gives employees reimbursements for qualified medical expenses. It’s a fairly new benefit that companies are now implementing and because of this, the Department of Treasury has issued a few guidelines about it even though HRAs are still evolving.
How Reimbursement Health Plans Work
Health reimbursement accounts are very similar to an insurance plan. Employers set aside funds that can be used to reimburse employees for any qualified medical expenses that they incur. The word "qualified" means that there are also specific guidelines about which expenses can or cannot be reimbursed. HRAs can be implemented by companies of any size. The company provides the funds, and unused amounts will be carried over to the following year. HRAs also help employers with preferential tax treatment, much like the tax treatment they get if they fund an insurance plan for their employees.
Guidelines From the Government
The U.S. Treasury Department and Internal Revenue Service have issued various guidelines for health reimbursement arrangements. Plans must be solely funded by the employer and should not correspond to any salary deductions. Also, plans may only provide benefits for substantiated medical expenses. HRAs are group health plans, according to the guidelines, and as such are subject to the COBRA continuation requirements.
Advantages
Aside from the fact that health reimbursements aid employees with their health care expenses, another good thing about them is that they are flexible. Employers can design and adjust plans to meet the specific needs of their employees. Reimbursements are also funded entirely by the employer, and will not be deducted in any way from the salary of the employee.
Limitations
As great as health reimbursements may be, they are also bound by various limitations. Since it is the employers who pay for everything, they can impose their own limitations on what expenses are or are not eligible for reimbursements. They can also decide on whether or not to adjust the plan according to the employee’s age and length of service, among other factors. HRA balances are also non-convertible to cash, but will continue if an employee joins a new employer.
