Health Reimbursement Arrangement (HRAs) - An Introduction

A Health Reimbursement Arrangement (HRA) is an IRS sanctioned program (Section 105) that allows an employer to set aside funds to pay for medical expenses on a tax free basis for participating employees.

The employer designs the HRA benefit plan for eligible employees. The employer can determine the benefits provided i.e. copays and the maximum benefits allowed as well as the effective date. The benefits provided must meet the IRS definition of a qualified medical expense. Spouses and dependents are eligible to participate.

Funding of the HRA can only be done by the employer.

HRA’s are usually established for a 12 month period. It is common for the employer to allow a three month claims run-out grace period for reimbursements for the previous plan year. For example, if the employer provides an HRA from January 1, 2012 through December 31, 2012, an employee would be able to submit medical expense receipts for 2012 through March 31, 2013.

Redwood Health Services (RHS) is the third party administrator through which we offer the necessary IRS documents, establish an HRA trust bank account, and provide a summary of benefits to participating employees. RHS will provide the necessary enrollment material and other educational material to assure employees know how to access the HRA funds available.