Nearing Retirement
Pros and cons of health reimbursement accounts
A health reimbursement arrangement (HRA) is a tax-advantaged benefit that allows both employees and employers to save on the cost of healthcare.
HRA plans are employer-funded medical reimbursement plans where the employer sets aside a specific amount of pre-tax dollars for employees to pay for health care expenses on an annual basis. Based on the plan design, HRAs can generate significant savings in overall health benefits.
HRAs may be designed in many fashions to suit the specific needs of the employer and employees. It is one of the most flexible types of employee benefit plans, making it very attractive to most employers.
Pros
- Lower Costs – Health care can be costly. An HRA offered in conjunction with a high deductible health plan (HDHP) can result in reduced healthcare costs. And you can typically use HRA funds to pay for deductibles, co-insurance, co-payments, and prescriptions, among other out-of-pocket healthcare expenses, depending on your plan details.
- Health Care Freedom – Individuals have greater choice over their healthcare decisions by using the available funds to cover eligible out-of-pocket medical expenses.
- Tax-neutral – One of the major benefits of an HRA is that the employer’s contributions do not count toward your gross income. And when you file a claim for a qualified medical expense, the reimbursement is tax-neutral.
Cons
- Portability – HRAs are employer-funded, so the employer owns the money in the account. If you leave the company or the job is terminated, the HRA money does not go with you.
- No Standardization – Plan flexibility may be great for employers, but if your new employer offers different reimbursement rules than your previous one, it could be confusing. Aside from following mandatory requirements for COBRA continuation, ERISA, and HIPAA, HRA, plans can vary between companies.