A Health Reimbursement Arrangement (HRA) covers only a select range of medical and dental expenses outlined by the Internal Revenue Service (IRS). These permitted expenditures are for treatments that alleviate or avert physical or mental ailments but do not cover general wellness costs such as vitamins. 

While these allowable outlays may be accepted from an IRS perspective, employers have complete discretion to decide which out-of-pocket expenses will be reimbursed through their HRA plan.

HRAs can be used to pay for qualified medical expenses including:

• Prescription medications
• Health insurance premiums
• Co-pays and coinsurance
• Insulin
• Annual physical exams
• Crutches
• Birth control pills
• Transportation costs incurred to get medical care
• Meals while receiving treatment at a medical facility
• Care from a psychologist or psychiatrist
• Substance abuse treatment, and more

Here are some examples of items that an HRA doesn't cover:

• Teeth whitening
• Maternity clothes
• Funeral services
• Health club membership fees
• Controlled substances
• Childcare for a healthy baby
• Marriage counseling
• Non-prescription medications or vitamins

This Series C startup surveyed their 105 employees and learned that employees wanted to have expanded options for IVF and mental health coverage, in addition to their major medical plans.

The employer is in California, where the average cost of IVF is $10,500. Therefore, the employer set its monthly available reimbursement amount at $875 per year with an annual cap of $10,500. Eligible reimbursable expenses included IVF treatment, prescription drugs, abortion care, and birth control.

In order to expand coverage to cover really niche need, this employer chose a very limited number of eligible expenses. However, you saw above that there are a wide range of expenses deemed eligible by IRS in Publication 502. When you set up your Health Reimbursement Arrangement with Liferaft, our team will give you free professional advice about how to best set up and structure your HRA plan(s). We'll help you choose the right mix of benefits for your business, create your HRA plan documents, and ensure that your employees are getting the most out of their HRA.

Health Insurance Expenses

‍Employers can easily offer health insurance for the first time or replace their restrictive group health plan, allowing employees to choose a health insurance plan from the individual market. HRA reimbursements are designed to be ACA-compliant and make the cheapest Silver Plan affordable. 

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‍IVF Treatment

‍For employers seeking to cover certain IVF-related expenses. Average IVF treatment costs range from $10,000-$30,000 depending on geography, and employers can choose to reimburse employees for IVF expenses. 

Deductible Reimbursement

‍For employers looking to move to a high deductible health plan without increasing out-of-pocket exposure for employees. This will reduce health premium costs for employees, and the HRA plan will reimburse them for expenses such as hospitalizations, co-payments, and pharmacy expenses.

Are Health Reimbursement Arrangements considered income?

According to the IRS, employer-issued reimbursements are not considered income and are exempt from federal income and payroll taxes. This is one of the significant tax benefits of distributing employee benefits through a Liferaft Health Reimbursement Arrangement.

What happened to unused funds? Do they roll over?

One of the central values of a Liferaft Health Reimbursement Arrangement is flexibility, and the answer here depends on the employer’s specific policies. Some companies may have a "use it or lose it" policy regarding account funds, meaning that any funds not used by December 31st will be forfeited and cannot be carried over into the new year. Other employers allow employees to roll over a certain amount of money from one year to the next. Put plainly—it’s up to you!

What are some disadvantages of an HRA?

Because the funds in a Liferaft Health Reimbursement Arrangement are employer-funded, the employer owns the money in the account even though it is for the individual to use. If the person leaves the company or their job is terminated, the account funds stay behind with their former employer.  Employers can offer a retirement account that allows former employees to utilize funds after leaving the company.

Additionally, different employers often have different rules for reimbursement, which can be a problem for employees if they switch companies. Aside from mandatory requirements like COBRA continuation, ERISA and HIPAA, plans can vary widely.

Which employees are eligible for a Liferaft Health Reimbursement Arrangement?

Liferaft Health Reimbursement Arrangements can be offered to any employee, as long as each job class is treated equally. This means you can easily provide benefits to part-time and seasonal employees. However, depending on what type of expenses you plan on reimbursing, there are specific IRS requirements. After learning about your business and goals, Liferaft will make a plan recommendation for the most tax-advantaged, affordable way to structure your account.

Our team knows the ins and outs of the health insurance marketplace and will guide you towards the solution that make the most sense for your business and your team. Come with questions! Our experts are happy to dig into the details to get you the clarity you need.

During the call, Liferaft will run a cost-benefit analysis on your company's current healthcare spending and show you different ways you can save—without sacrificing plan quality. After your consult, Liferaft will design a unique plan for your employee's health insurance, including suggested plans and accounts, plan policy documents, and the annual budget.