What is a Health Reimbursement Arrangement?

A health reimbursement arrangement or health reimbursement account is a type of benefit employers may offer, where they pay part of an employee's medical expenses through a special type of bank account. When the plan is administered correctly, there are tax benefits for employees and employers alike. Information about this and other benefits options available at a workplace should be provided by human resources so employees are familiar with their benefits packages.

In a health reimbursement arrangement, an employer deposits a set amount each year into a special bank account. The money can roll over into future years if the plan is set up that way. When an employee has a documented medical expense, such as paying for new glasses, the money to pay for it comes out of that account. Commonly, this arrangement is paired with high deductible insurance. The health reimbursement arrangement will cover the deductible, as well as medical expenses not addressed with health insurance.

Employers receive tax savings for offering this benefit, creating an incentive to do so. When they structure it with high deductible health insurance, they can also save money on a health plan for their employees. Employees get tax savings as well, as the disbursements from the health reimbursement account are provided tax free. Access to funds to help cover medical expenses can encourage employees to get treatment for conditions not covered by insurance, limiting time lost at work for untreated medical conditions, as well as making employees more comfortable and happy.

If a workplace offers a health reimbursement arrangement, it must be set up as directed by tax authorities. Accountants and benefits planners can help with this. Generally, all of the contributions must come from the employer, and the funds must be deposited in an account clearly designated for use as part of a health reimbursement arrangement. Other arrangements, such as direct payments from employers to employees or health savings accounts where employees can also contribute, are handled differently.

The availability of benefits varies by workplace. People preparing for new jobs may want to get information about the benefits packages available and can consider negotiating for better benefits if they have competing job offers. Many employers are willing to be flexible when it comes to recruiting promising staff members, especially in cases like this, where there are tax benefits available for providing benefits. Employees should be careful when sharing the details of competing offers, as there may be limitations on the kind of information they can disclose if they have signed any paperwork associated with a job offer.