Understanding Health Reimbursement Arrangement (HRA) for Young Adults

Health insurance can be a daunting subject, especially for young adults who are just starting their careers. If you’re fortunate to have health coverage through your parents under the Affordable Care Act (ACA), you may be wondering if there are other ways to save for healthcare expenses. One option to consider is a Health Reimbursement Arrangement (HRA).

What is an HRA?

An HRA is an employer-sponsored plan that allows employees to set aside funds on a pre-tax basis to reimburse themselves for qualified medical expenses. This can be a tax-advantaged way to save for healthcare costs, as the money you contribute to the HRA is deducted from your paycheck before taxes.

How HRAs Work

HRAs are typically offered in conjunction with a high-deductible health plan (HDHP). This means that you will have a higher deductible for your health insurance coverage, but you can use the funds in your HRA to cover the expenses until you meet your deductible.

Using HRA Funds

HRA funds can be used to cover a wide range of qualified medical expenses, including:

Doctor visits
Hospital stays
Prescription drugs
Vision and dental care
Over-the-counter medications

Maximizing Tax Savings with HRAs

If you’re eligible for an HRA, there are a few things you can do to maximize your tax savings:

Contribute the maximum amount: Many employers allow employees to contribute up to $5,000 to their HRA annually. By contributing the maximum amount, you’re saving the most money on your taxes.
Consider an HDHP: If you’re healthy and don’t anticipate needing extensive medical care, an HDHP can be a good option because it will lower your monthly premiums and allow you to contribute more to your HRA.
Use your funds wisely: Make sure you’re using your HRA funds for qualified medical expenses. If you don’t use your funds by the end of the year, they may be forfeited (depending on the “use it or lose it” rules of your employer’s plan).

Other Options for Saving for Healthcare Expenses

If you’re not eligible for an HRA or if you’ve maxed out your contributions, there are other ways to save for healthcare expenses:

Health Savings Account (HSA): An HSA is similar to an HRA, but it is available to individuals who have a qualifying HDHP. Contributions to an HSA are also tax-free, and the funds can be used to cover a wider range of qualified medical expenses, including future healthcare costs.
Flexible Spending Account (FSA): An FSA is another type of employer-sponsored plan that allows employees to save pre-tax dollars for qualified healthcare expenses. However, FSA funds are limited to certain categories of expenses, such as vision, dental, and medical expenses that are not covered by your health insurance plan.

Conclusion

If you’re looking for ways to save for healthcare expenses, an HRA can be a valuable tool. However, it’s important to understand the rules and regulations surrounding HRAs to make sure you’re using your funds wisely. If you’re not eligible for an HRA or if you’ve already maxed out your contributions, there are other options available to help you save for healthcare expenses. Seeking guidance from a licensed healthcare agent can help you determine which option is best for your individual circumstances.