Health Reimbursement Arrangements allow employees to own their own individual health insurance while the employer takes advantage of lower rates and fixed costs. A health reimbursement arrangement is an agreement between all employees of a company and ownership of that company that permits a fixed dollar amount to be reimbursed to each employee for health related expenses, for example premiums, prescriptions or even over the counter medications. This puts more of the financial responsibility in the hands of the employee and the employer doesn’t dictate what the employee’s must accept as a health benefit. This concept leads to more active and cost efficient participation by the employees and reduces health care costs. HRA’s are available for any size employer group, and the typical HRA is designed to be used along with a health plan that has higher deductibles and fewer co-payments then the usual health plan.

The only people that can contribute to an HRA are the employers. Any and all reimbursements are excluded from an employee’s gross income and employers can also deduct reimbursements as a business expense and exclude them from wages. The only people eligible to participate in an HRA are the current and former employees. Self employed individuals, partners, and shareholders who hold more than two percent of their company’s stocks are not eligible to participate because of tax purposes, but they can still receive nearly all the tax benefits that the other employees receive.

There are many benefits to owning your own health insurance. First, encourages people to manage their own health costs and understand the relationship between healthy living and health insurance cost. Second, you never have to worry about losing your health insurance if you lose your job as long as you continue to pay your monthly premiums. Third, the insurance plan that you buy fits your needs not someone in HR. On the employer side an HRA permits the company to fix their health insurance expenses by contributing a fixed amount per year, per person.