Health Reimbursement Arrangement Pros and Cons

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Because of the higher costs of healthcare today, many people are given the option to take advantage of a health reimbursement arrangement. These accounts can benefit households because of the way they are structured to help pay for medical expenses, but they may not be right for everyone. It is an IRS program that allows an employer to reimburse an employee for a medical expense and a tax benefit is provided to offset the cost. Here are the pros and cons of this type of payment arrangement.

The Pros of an HRA

1. The reimbursements claims from an HRA are tax deductible.
Because of the tax deductible nature of these accounts, many of the overall costs of offering health care coverage to the employees of a corporation can be completely offset through the friendly tax laws. It may be a benefit that the employees of a company may never see personally, but it does allow for them to have comprehensive coverage that they may not have from other employers.

2. The funds that are supplied can be carried over in most cases.
One of the biggest issues with health savings funds of any type is that many of them require the funds to be used by the end of the year. This causes people to seek treatment out, even when it may not be necessary, just so they don’t lose the money in the account. The HRA allows most funds to carry over to the next year so that employers don’t lose the cash.

3. Anyone can get involved with the process.
No matter what a worker’s current status of healthcare coverage might be, they have the option to participate in an employer’s health reimbursement arrangement. This allows everyone to have some sort of coverage, something that other health savings accounts don’t necessarily allow.

The Cons of an HRA

1. There is a lot of red tape in place.
The biggest struggle that employers have with a health reimbursement arrangement is that there are several rules and regulations in place that govern them. Not every employer even knows if they can qualify to have an HRA. Third party distributors can sometimes answer questions, but many employers are left feeling like they have to guess at the process.

2. People who are self-employed are disqualified.
If you work in your own business, then you don’t have the ability to have an HRA that benefits yourself. You may be able to qualify your business to provide reimbursements for employees that directly report to you, but anyone who is a self-employed professional is automatically disqualified from the HRA benefit.

3. Higher levels of income can cap or prohibit contributions.
For employees that qualify for an HRA, but make a high level of income, may find that there are certain limitations to what they can receive as reimbursements. Some employees in this situation may find that they are disqualified from the plan, even if other workers in the same company are not.

By weighing the advantages and disadvantages of an HRA, employers can determine if this is the right benefit to provide their workers. Each decision must be based on the unique circumstances of every business, so consult the pros and cons with a third party distributor if necessary to find out if this is a good option for you.