Q:

How are HRA health plans different from others?

A:

Quick Answer

Health Reimbursement Arrangement (HRA) plans reimburse employees for certain medical expenses up to a certain amount per year, and they are not health insurance plans. It also differs from a Flex Saving Agreement (FSA), which is employer sponsored and employee funded. An HRA is employer sponsored and funded plan, according to the IRS.

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Full Answer

HRAs are funded entirely by employers, and contributions are excluded from employee income, according to the IRS. Additionally, employees cannot make voluntary salary reduction contributions. Employers offer HRAs through cafeteria plans, allowing employees to combine them with other employer-sponsored health benefits, including FSAs. Only participants in group insurance plans can participate in an HRA, making self-employed individuals ineligible.

Employees can use HRA plans to pay for out-of-pocket medical expenses that their insurance plan does not cover, such as co-payments, deductibles and health insurance premiums. Reimbursement payments are allowed for a spouse if filling a joint return and also for dependents who are under age 27 at the end of the 2014 tax year with a gross income of $3,950 or less. Employees do not pay federal taxes on employer contributions, and the funds can carry over from one year to the next, according to the IRS. However, they do not transfer between employers. Additional limitations apply for highly compensated employees.

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