A healthy partnership is not just between two organizations with similar goals who mutually benefit—but a relationship between employer and employee. This partnership hinges on employers attracting the right talent, finding a way to work happily together, and maintaining a long-term healthy relationship in which both parties feel mutually supported and secure.
When it comes to maintaining this relationship, one of the keys to a harmonious partnership revolves around the benefits the employer provides the employee. There are many elements involved in a benefits package like salary or wages, paid time off, and of course, health care insurance. To help employees afford their medical expenses, many employers offer health reimbursement arrangements (HRA), which are employer-sponsored accounts that reimburse employees for their qualifying health care costs. This article explores how HRAs can make for a healthier, happier union between employer and employee.
The Mutual Benefits of Health Reimbursement Arrangements
An HRA is a way for employers to reimburse their employees for health expenses, where the employers can claim a tax deduction, and employees can use employer-funded accounts to pay for medical costs—tax free. HRAs can be offered in lieu of group health insurance or in addition to group health insurance depending on the employer’s preference and employee needs. For example, a small employer might offer an HRA in place of group insurance, while an enterprise-size employer might offer an HRA as an employee perk that can offset medical expenses and also lower their benefits expenditure.
When an employer provides an HRA to employees, here’s what they bring to the partnership:
1. The employer contributes tax-free funds to the employee’s account.
Employees know exactly how much they have, how much is left, and when more will be put into the account.
2. The employer covers health care expenses for the employee and qualified family members.
This could include prescriptions, deductibles, copays, and countless eligible items and services—or whatever the employer approves as qualified expenses since these arrangements are highly customizable.
3. After paying for a qualified expense, the employee submits the payment to the employer and they reimburse the employee.
Pay, submit, get reimbursed. Straightforward!
As an added bonus, employees become more aware of health care costs and how best to use the funds, which increases engagement. Employers also have a lot of flexibility with this option to give employees what they want when it comes to their health care needs. There are a variety of ways HRAs can be managed:
General Purpose: Covers all IRS-approved health care expenses. This type of HRA is sometimes referred to as a 213(d) HRA.
Medical and Prescription: This type of HRA covers only medical and prescription expenses.
Medical-Only: The medical-only HRA covers medical expenses.
Member Pay First HRA: For this type of HRA, employees must meet an initial deductible prior to having access to HRA funds. This type of HRA is sometimes referred to as a post-deductible or an out-of-pocket HRA.
Limited Purpose HRA: This type of HRA, restricted to vision and dental expenses, is often coupled with a health savings account (HSA).
Retirement HRA: Sometimes referred to as a Retirement Medical Savings Account (RMSA), this account type is restricted to post-retirement benefits and remains dormant until the employee becomes eligible.
HRAs Can Offer Security to Employees
Sometimes, employees are uncertain about benefits, because they don’t want to lose money, or have it somewhere they can’t access it, or feel cheated by the entire system in general.
HRAs are designed to alleviate these concerns. Employees can save on medical costs without using their own personal funds, and they’re able to do it before taxes. On the employer side, they know exactly where the funds are going. This establishes a level of trust and reliability between all parties…which is always important in a relationship.
An additional benefit is the inherent flexibility of the HRA system, since there are hundreds of ways employers can choose to set up an HRA that works best for them and their employees. For instance:
Employers decide whether HRA funds are forfeited at the end of the plan year, or whether funds remain in the account year over year, depending on the type of HRA offered. Employers can limit the rollover to either a dollar amount or a percentage of the total account balance (again, contingent on HRA type offered).
An HRA may feature uniform coverage, or have funds deposited throughout the year. If the account has uniform coverage, the full annual election amount is available on the first day of the plan year. Alternately, a fund-as-you-go HRA will make funds available to employees on a specific, employer-defined contribution schedule.
Employers maintain control over account portability as well as the extension of benefits to spouses, dependents, and survivors of deceased employees.
- Retirement Portability: Employers can set the amount of HRA funds available at the end of the year that can pour over to a retirement account. The pour-over amount is set as a percentage of funds available at the end of the plan year.
- Termination Portability: If an HRA is designed to be portable, then the account will stay active after employment ends and even into retirement.
Ensuring Everyone is On Board with HRAs
The reality of the partnership is that it has to be valuable to both partners. In the HRA employee and employer situation, these benefits need to be considered:
Easy to use: Can funds in the account easily be accessed? Does the employee know the account balance? Make certain everyone knows how to use it and how to work together.
Rapid reimbursement: Does this happen quickly and easily? Set up a system where all parties are satisfied with the process.
Tax advantages: Make sure everyone understands the tax advantages of the HRA system.
Not only does the practical part of it work for employees and employers, but it also saves money. In fact, businesses using an HRA realized average cost savings of 27% and 52% for self-only and family status employees, compared with average group health insurance costs. These kind of savings are going to make everyone a little more satisfied.
Employers are looking for every possible way to get and keep the best employees, and HRAs are a great way to get attention. At the end of the day, maintaining that healthy working relationship between both parties is a universal goal. Here’s to building long-term partnerships between employers and employees that withstand the test of time!
If you want to know more about HRAs for your organization, learn about our HRA solutions here: HRAs for Employers
About the Author:
Carla Wardin lives in St Johns, Michigan, where she focuses her writing on the health and technology industries.