What is a health reimbursement arrangement (HRA)?

A health reimbursement arrangement (HRA) is an employer-funded plan designed to reimburse employees for qualified medical expenses. This type of arrangement allows employees to receive reimbursements for out-of-pocket costs associated with healthcare, such as copayments, deductibles, or other health-related expenses that qualify under Internal Revenue Service (IRS) guidelines.

HRAs are particularly beneficial because they are entirely funded by the employer; this can help manage health care costs for employees while providing them with a tax-advantaged method of paying for healthcare. Employees do not pay taxes on the reimbursements they receive for eligible medical expenses, making it a cost-effective option for both the employer and the employee.

By contrast, employee-funded plans pertain to options where employees contribute their own funds instead. Government-provided health insurance generally refers to programs like Medicaid or Medicare, which are not employer-specific arrangements. Lastly, plans that offer discounts on health insurance premiums do not provide the same structure or reimbursement capabilities as HRAs do. Therefore, understanding the nature of how HRAs function highlights their role as employer-funded arrangements specifically meant for reimbursement of medical costs.