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The employer purchases a high deductible catastrophic health plan, reducing their traditional health premiums by as much as 25-30%. There is no statutory plan design.

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The employer redirects all or a portion of the premium savings into notional HRA accounts for individuals and/or families. There is no minimum or maximum HRA amount.

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The HRA accounts are notional to the extent that the money always stays on the balance sheet of the employer, until claims are presented for payment. HRA accounts are owned by the employer unless the employer develops a vesting schedule.

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Employees are free to use the HRA funds in “their” account for medical expenses not covered under the high deductible health plan. These are normally routine and preventive expenses.

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Eligible expenses are defined under IRS Code Section 213 (d), but in most instances, expenses are limited to those defined as eligible under the Plan Document.

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If expenses exceed the amount available in the HRA, excess eligible expenses are paid under the high deductible health plan.

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The employee is able to rollover, tax free, any unused HRA balances, which may be used for future expenses. For example, if the employee starts with $1,000 in their HRA and incurs no expenses, they may rollover $1,000 to next year and start next year with $2,000 in their HRA.

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The “use it or keep it” process generally leads to more informed purchasing of medical services by a plan participant.

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While an HRA is generally not portable, portability, vesting and investment options may be incorporated into the plan by generous employers.