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Understanding Health Reimbursement Arrangement (HRA)


Understanding Health Reimbursement Arrangement (HRA): As the cost of healthcare continues to rise, employers and employees are constantly seeking innovative ways to manage their expenses. One solution that has gained popularity in recent years is the Health Reimbursement Arrangement (HRA). In this article, we will explore what HRA is, how it works, and its benefits.

What is a Health Reimbursement Arrangement?

A Health Reimbursement Arrangement (HRA) is an employer-funded health benefit plan that reimburses employees for out-of-pocket medical expenses. Employers set up HRAs to help their employees pay for qualified medical expenses that are not covered by their health insurance plan. Employers fund HRAs with tax-deductible dollars, and employees can use these funds to pay for their eligible medical expenses.

How Does an HRA Work?

Employers can set up an HRA in different ways, but the most common method is to offer a defined contribution amount to each employee. The employer sets a maximum amount of money that can be reimbursed each year, and employees can use this money to pay for eligible medical expenses.

Employees can submit receipts for their medical expenses to the employer, and the employer reimburses them up to the amount specified in the HRA plan. Employees can use their HRA funds to pay for eligible expenses such as deductibles, copays, and coinsurance.

Benefits of HRA

HRAs offer several benefits to both employers and employees. Some of these benefits include:

  1. Cost Control: Employers can control their healthcare costs by setting a budget for their HRA plan. This helps them manage their healthcare expenses while providing their employees with a valuable benefit.
  2. Tax Savings: Employers can deduct the cost of funding their HRA plan from their business taxes. Additionally, employees do not pay taxes on their HRA reimbursements, making it a tax-efficient benefit for both parties.
  3. Flexibility: Employers can design their HRA plan to meet the specific needs of their employees. They can choose the amount of money to contribute and the expenses that are eligible for reimbursement.
  4. Employee Retention: Offering an HRA plan can help employers attract and retain top talent. It shows that they care about their employees’ well-being and are willing to invest in their health.


An HRA is a flexible and cost-effective way for employers to offer their employees a valuable health benefit. It allows employees to pay for their eligible medical expenses with tax-free dollars, while employers can control their healthcare costs and attract and retain top talent. If you are an employer looking for ways to provide your employees with a valuable health benefit, an HRA is worth considering.


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