\n An HRA may be funded only by employer contributions. Money in the\n account may be used to reimburse employees for deductible payments and\n other out-of-pocket health costs (including spouse and dependents).\n Funds in a Health Reimbursement Account may roll over to the next year\n according to the policies of the employer.\n
\n\n\n If an HRA is designed and operated in compliance with IRS guidance,\n employees will not be taxed on the value of their HRA coverage or on\n reimbursements that they receive from the HRA, under Code §105 and §106,\n even though unused amounts may carry forward into future years for\n reimbursement of medical expenses. The employer will, subject to certain\n conditions and limitations, be entitled to a deduction for\n reimbursements made under the HRA.\n
\n\n Here is an example of how an HRA might work in conjunction with a common\n high-deductible health coverage (HDHC) arrangement.\n
\n\n An employer has an insured plan with high-deductible health coverage\n (HDHC), but with first-dollar coverage for certain preventive services\n such as flu shots, mammograms, well-child checkups, and annual physical\n exams. The employer pays 50% of the HDHC premium, and employees pay the\n other 50% with pre-tax salary reductions under a cafeteria plan.\n
\n\n Employees who participate in the HDHC also participate in an\n employer-funded HRA with a $1,000 annual limit that can be used to pay\n for out-of-pocket medical expenses (e.g., co-pays, deductibles, and\n medical expenses that are not covered by the HDHC). Expenses submitted\n to the HRA may qualify for negotiated provider discounts like the\n discounts available under the HDHC. Unused HRA amounts can be carried\n over from year to year for reimbursement of medical expenses. The HRA is\n not part of the cafeteria plan.\n
\n\n The health plan in the example above is a hybrid arrangement combining\n features of traditional health care with consumer-driven health care\n (CDHC) features. It is designed to heighten employee awareness of health\n care costs and reduce unwise expenditures by having employees bear the\n cost of their medical care (i.e., they will have to dip into their HRAs)\n up to the HDHC deductible amount. Proponents of a consumer-driven\n approach claim that it will reduce overall health costs by making\n employees better health care consumers. Others say that it penalizes\n individuals who have greater health care needs.\n
\n\n An HRA can be coupled with HDHC as in the above example, or it can be\n offered on a stand-alone basis. When a stand-alone HRA is offered, an\n employee would not be required to participate in HDHC in order to be\n eligible to participate in the HRA.\n
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