Healthcare
Reimbursement Accounts (HRAs) can be a great way to pay
for medical expenses not covered by your health care
plan. The pre-tax deduction taken out of your paycheck
can also help reduce your tax burden.
Participants in HRAs determine how much their
out-of-pocket medical expenses will be for the coming
year, and then the employer deducts an amount from their
pay before taxes. For example, if you believe your
expenses will be $1,200 over the calendar year, and you
are paid twice monthly, your employer will deduct an
addition $50 from your pay every pay period.
One of the benefits of an HRA is that large health
care co-payments or deductibles may be withdrawn from
your pay over time. In other words, if you your have a
$1,000 co-payment for a hospital stay in February, some
HRAs will reimburse you immediately, even though your
monthly HRA deduction is only $100 per month for the
calendar year. HRAs differ in their reimbursement
policies, so check with your benefits administrator to
learn more about yours.
The keys to making an HRA work for you is
understanding what your particular health care plan
covers and accurately predicting how much you will need
to have deducted from your pay to cover out-of-pocket
medical expenses during the upcoming calendar year. The
Internal Revenue Service code states that any unused HRA
funds are forfeited, so accurate planning is vital.
Here are some tips about how to estimate your future
medical costs:
- Look at last year’s medical expenditures to
determine the ones that are likely to repeated, like
prescription drug co-payments or annual visits to the
doctor.
- Consider any one-time needs, such as vision
correction eye surgery.
- To be on the safe side, underestimate your
expenses.
- Add in some non-critical covered expenses that you
could spend HRA funds on in December, such as
prescription sunglasses or a spare pair of contact
lenses. That way you’ll have HRA funds available for
an unexpected trip to the emergency room but won’t
have to forfeit the funds if there are no medical
surprises during the year.
Most HRAs cover co-payments and other expenses not
paid for by your health insurance plan. The following is
a list of some of the eligible expenses:
- Deductibles and co-payments not paid by your
health care insurance
- Eyeglasses and trips to optometrist
- Contact lenses and contact lens solutions
- Orthodontia
- Vision-correction eye surgery
- Weight-loss treatment prescribed by a physician to
treat an illness
- Therapy
- Treatment for addiction, including smoking
cessation
- Transportation to receive medical care
Not everything is covered, however. Here are some
expenses generally not covered by HRAs:
- Health care premiums
- Cosmetic surgery if it is not medically necessary
- Non-prescription medication
- Nursing home care
- Marriage counseling
Be clear about your HRA’s claims reimbursement
process. Some plans may provide an electronic card you
use when paying your health care provider. It works like
a credit card, deducting the funds directly from your
HRA account. Others may require you to pay the health
care provider upfront and submit a claim form for
reimbursement. Receipts may be required, so be sure to
save them.
Remember that the other benefit of an HRA is that you
pay fewer tax dollars. HRA funds are withdrawn from your
paycheck pretax, and you won’t owe taxes on the funds
you withdraw for claims. Tax savings can be
significant.
Check with your benefits administrator to find out if
your company offers an HRA and if you are
eligible.
