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Health Reimbursement Arrangements (HRAs)

Why Employers Care

Health reimbursement arrangements (HRAs) offer tax-advantaged savings and provide employers the most flexibility of all health care accounts. When using HRAs to fund and reimburse health care costs, employers can choose the types of expenses eligible for reimbursement, whether to permit the carry-over of unused amounts to future years and whether the accounts will be funded or notional.

When paired with high deductible health plans, HRAs encourage consumerism by promoting individual control over and responsibility for health care spending decisions. Specially designed retirement-only HRAs can be used to reimburse medical expenses incurred only after retirement.

While a popular health funding and reimbursement vehicle for many employers, current IRS rules do not permit employee contributions, limiting their attractiveness for some employers. Complex coordination rules with health flexible spending accounts (FSAs) and health savings accounts (HSAs) also complicate HRA administration.

The Patient Protection and Affordable Care Act includes a provision that bans the use of health accounts, including HRAs, to pay for over the counter medicines unless a physician prescribes them. Beginning January 1st, 2011 people may only use health flexible spending accounts (FSAs), health savings accounts (HSAs), or health reimbursement arrangements (HRAs) to pay for OTC medicines like those in the following categories if they have prescriptions for them:

Allergy Medicines
Antibiotic Ointments
Anti-Itch Medicines
Anti-Inflammatory Drugs
Anti-Fungal Treatments
Cold Remedies
Cough Medicines
Digestive Aids
Heartburn Medicines
Pain Relievers
Respiratory Treatments
Sinus Medications
Sleeping Aids
Stomach Remedies

People can still submit claims for reimbursement for these OTC products with appropriate documentation (copy of the prescription and the receipts). Since the law passed, Congress has considered legislation multiple times that would repeal the provision in the Affordable Care Act which bans people from using health accounts to purchase OTC products. Unfortunately, Congress has so far failed to remove this onerous requirement. The Business Group sent support letters in favor of the legislation.

Under Affordable Care Act regulations employers can no longer offer stand-alone HRAs to active employees, but they must integrate their HRAs with other health plans they may still offer them. In addition, employers may still offer stand-alone HRAs to retirees but doing so may make people in retiree-only HRAs ineligible for premium tax credits and cost-sharing reductions on the health insurance exchanges.

What Can Employers Do?

To achieve better coordination between HRAs and HSAs and high deductible health plans, employers can design their HRAs as "limited purpose" accounts that reimburse only permitted coverage (such as dental or vision coverage) and/or preventive care. HRAs can also be designed to reimburse expenses only after the health plan's deductible has been reached.

As members of the National Business Group on Health, employers can voice their concerns while shaping and influencing public policy on HRA regulations and legislation to the Business Group's public policy team and by responding to public policy opportunities to comment on proposed regulations, contact Congress and/or the Administration, testify, or participate in related activities.

Relevant Tools and Resources Include:

Page last updated: January 29, 2014

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