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Why Is an HRA Good For Business?

Pairing a high deductible health plan with an HRA has a number of advantages for an employer, including the following:

  • You reduce your health insurance premium when you replace your low deductible health plan with a high deductible plan.
  • If your employees incur fewer medical expenses than the amount you deposit in their respective HRA, your savings can be even greater.
  • You have an opportunity to reduce costs at renewal, since employees will have an incentive to make more informed decisions about their health care.
  • Reimbursements are tax deductible.
  • You do not need to pre-fund your HRA account. Reimbursements may be made from your business’ general account when medical expenses are incurred, which allows for greater control of cash flow.
  • If an employee's employment is terminated, you can retain ownership of the funds.

You have a great amount of flexibility in designing your HRA. You can specify the terms of your HRA, including the following:

  • The maximum annual reimbursement.
  • Who pays deductible expenses first, your employees or you.
  • Whether unused funds can be rolled over to the next year, and if so, the amount that can be rolled over.
  • What expenses will be covered by the HRA. For example, you may elect to allow all IRS qualified medical expenses to be paid through the HRA, or you may limit or restrict what expenses may be reimbursed. And if you wanted to encourage employees to seek preventive care, you might stipulate that a portion of the HRA is forfeited if not used for

Pairing a high deductible health plan with an HRA has a number of advantages for the employee, including the following:

  • Employees are protected against catastrophic medical costs.
  • HRAs are employer-funded and depending upon the plan design, the employer may pay for benefits first.
  • Employees receive reimbursements tax-free.
  • Employees become more involved in their own health care and make more informed spending decisions.

Employees can save money when you move to a higher deductible plan with an HRA. Here's how:

  • If employees currently pay for a portion of their premium, you can reduce the amount they pay.
  • If a catastrophic event does occur, an employee’s portion of total claim cost could be less with an HRA plan.
  • Employees can build up a significant account balance to be used for future medical needs if the plan design permits rollovers.