Q&A with Brandon Long
Reform prohibits use of health
Q: What is a health reimbursement arrangement (HRA)?
A: An HRA is an arrangement offered by some employers to reimburse employees for medical expenses incurred by the employee, the employee's spouse, and the employee's dependents (and certain others), up to a maximum dollar amount. Usually the employer credits an employee with a dollar amount under the employee's HRA account and then reimburses the employee for medical expenses up to the credited amount. Employers have been using HRAs for some time because they provide certain flexibility that other arrangements do not. Amounts reimbursed through an HRA are excludable from the employee's income.
Q: How have small employers used HRAs in the past?
A: HRAs can be structured in different ways. Some small employers who can't afford to provide a group health plan for their employees have historically used HRAs to help employees buy individual insurance policies. For example, some small employers have used HRAs to pay the employee's premiums — for an individual insurance policy — directly to the insurance company, on a tax-free basis to the employee. This has been a very nice tax benefit to employees of small employers.