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Health Reimbursement Arrangements
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Health Reimbursement Arrangements

Consumer Driven Health Plan (CDHP) models are generally designed to provide financial incentives for employees to make cost conscience decisions about their healthcare. Though conceived of several years ago, these programs are now beginning to gain traction in the marketplace. In addition to providing employee incentives, when designed right, CDHP models can also result in lower costs to employers. Health Reimbursement Arrangements (HRA’S) and Health Savings Accounts (HSA’S) are the two most common approaches to implementing the CDHP concept.

A Health Reimbursement Arrangement is an approach in which an employer reimburses an employee for employer-defined out-of-pocket medical expenses, as allowable by Internal Revenue Code section 213. The employee often pays for the medical expense up front and then is reimbursed by the employer. HRA payments are received tax free to the employee and are a deductible business expense for the employer as long as IRS requirements are met. In a practical application, employers can customize benefits and/or utilize a limited-risk model of self-insurance which otherwise might not have been available (IE. under State Small Group Reform). State or local laws may vary.