An employee medical reimbursement plan can provide cost-savings to the employer and increased choice and savings to employees. But with the sea of acronyms and terms, it can be difficult to understand the different types of reimbursement plans.
This article provides an overview of four common types of employee medical reimbursement plans including Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), Healthcare Reimbursement Plans (HRPs), and Health Flexible Spending Accounts (FSAs).
Health Savings Account (HSA)
HSAs are individual bank accounts owned by employees that allow tax-free medical expense reimbursement. While HSAs are often offered as "employer benefits," they are really more like IRAs because individuals can set them up and contribute to them on their own. Because HSAs are employee-owned, the account stays with the employee even if they change jobs, retire, or leave employment. An employer usually offers an HSA-qualified high-deductible health plan and an HSA.
An HRA is an employer-funded, tax advantaged employer health benefit plan that reimburses employees for out of pocket medical expenses. An HRA allows the employer to make contributions to an employee's "account" and provide reimbursement for eligible expenses. HRAs are used in one of two ways. Either the employer offers an Integrated HRA, paired with a high-deductible health insurance plan. Or, the employer offers a stand-alone HRA used to reimburse individual health insurance premiums. However, health reform has placed limitations on the use of stand-alone HRAs for most employers. If an employer wants to reimburse for individual health insurance premiums, they often set up a limited-purpose Healthcare Reimbursement Plan discussed next.
An HRP is a type of medical reimbursement plan designed for premium reimbursement. An HRP is funded and owned by the employer. Employees may use their allowance to reimburse themselves for qualified individual and family health insurance premiums. HRPs are often the foundation of a premium reimbursement program or "pure" defined contribution health benefits, and can be designed to comply with health reform's new Market Reforms.
Health FSAs offer a tax-free way for employees to save for qualified medical expenses during a single year. FSAs can be paired with any health plan or used alone. Funds expire if not used by the plan year-end.
FAQ: How does Health Reform Impact Employee Medical Reimbursement Plans?
The Affordable Care Act (known as the ACA, ObamaCare, or health reform) was signed into law in 2010 and impacts many areas of health care and health insurance, including employee medical reimbursement plans. For example, over-the-counter (OTC) medications are no longer eligible for tax-free reimbursement unless obtained with a prescription, the Health FSA contribution limit is capped at $2,500 a year, and many of the employer-funded medical reimbursement plans are now subject to the ACA's new Market Reforms.
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