What is a Healthcare Benefit Allowance?

March 26, 2013
What is a healthcare benefit allowance?

In this article, we'll provide an overview of healthcare benefit allowances.  Health reimbursement arrangements (HRAs) are types of healthcare benefit allowances.

What is a Healthcare Benefit Allowance?

According to Investopedia, a benefit allowance is: "Money that a company or government agency provides to an employee for a specific purpose, such as transportation, healthcare costs or a flexible spending account. Benefit allowances administered to employees can be distributed through regular payroll."

Therefore, a healthcare benefit allowance is simply an allowance a company or organization provides to employees for healthcare expenses.  

How Healthcare Benefit Allowances Work

Employers can use a healthcare benefit allowance to give employees flexibility in creating a benefits package that best meets their needs. Rather than imposing a particular healthcare plan on all employees, the employer could offer a healthcare benefit allowance (such as a Health Reimbursement Arrangement). Each type of plan will outline what types of expenses are eligible under the plan. Employees could use their healthcare benefit allowance for eligible medical expenses of their choosing, such as:

  • A personal or family insurance plan that fits their specific needs

  • Supplemental coverage like dental or vision insurance, or coverage for dependents

  • Eligible out-of-pocket medical expenses such as doctor visit copays, prescriptions, physical therapy and emergency visits

Employer Control, Employee Choice

Healthcare benefit allowances give employers greater control over monthly health benefits costs, and give employees more choice in their health care coverage. With a healthcare benefit allowance, the employer sets their own parameters, including:

  • Which types of medical expenses to cover

  • Maximum contribution amounts

  • What happens to unused contributions

With healthcare benefit allowances through HRAs, employees receive customized benefits to fit their needs, and employers can offer a competitive benefits package that will help recruit and retain top talent.

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