Health Reimbursement Account

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Health Reimbursement Accounts are also called Health Reimbursement Arrangements (HRAs). HRAs are partially self-funded medical insurance plans with special tax advantages. (See IRS Publication 969: [1]) Partially self-funded means the employer pays a predetermined portion of medical claims up to a cap. After the cap is reached, the plan picks up the slack and pays an amount equal to its portion of the co-insurance. The patient continues to pay a percentage of claims until the out of pocket maximum, or "stop-loss amount" is reached. The plan then pays 100% of medical claims up until the end of the benefit period. Benefit periods either run on a calendar year or a benefit year, that is, one year from the date the policy becomes active.

To the insured, the policy "looks" like a traditional medical insurance plan. Physician co-pays, drug card co-pays, and deductible and co-insurance generally apply. (All insurance policies are unique; it is likely that only some of these elements may apply.) The employees of companies with HRAs feel no difference from the plan design.

Health Reimbursement Accounts are only funded by the employers and can be deducted as business expense when actual distributions are made. An employee may only qualify for funds from an HRA while employed by the employer and subject to the terms of the governing plan document. The employer may cancel or amend a Health Reimbursement Account at any time.

Health Reimbursement Accoutns differ from Health Savings Accounts (HSAs) in that no separate savings account is involved. Although both plan designs are considered "consumer driven health care," HRAs resemble traditional plans, while HSAs are designed to place the responsibility of the cost of health care on the insured.