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Health & WellnessFor EmployeesHealth Reimbursement Arrangements in Canada

Health Reimbursement Arrangements in Canada

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Health insurance is a significant expense for many Canadian families. While Canada has universal healthcare provided by the government, many medical costs, such as prescription drugs, dental and vision care, and physiotherapy, still need to be covered.

This is where supplemental health insurance and healthcare spending accounts like Health Reimbursement Arrangements (HRAs) help employees pay for care.

Health Reimbursement Arrangements (HRAs) are becoming an increasingly common element of employee benefits packages. HRAs allow companies to contribute tax-free dollars to medical costs. Employees can use HRA funds to pay eligible healthcare expenses directly, freeing up income for other needs.

Let’s get started!

What is a Health Reimbursement Arrangement?

A Health Reimbursement Arrangement (HRA) is an employer-funded tax-advantaged account to reimburse employees for qualified medical expenses.

Canadian Health Finances: A Comprehensive Guide to HRA Know-How. IDC
Canadian Health Finances: A Comprehensive Guide to HRA Know-How.

With an HRA, the employer allocates contributions each year to pay for eligible healthcare costs on behalf of their employees. Funds are available upfront for workers to draw from to pay medical expenses as needed.

Employees submit claims to get reimbursed for qualified expenses throughout the year. Unused amounts can roll over at year-end with no use-it-or-lose-it penalty.

In this way, an HRA provides tax-free money for employees to pay healthcare costs out-of-pocket before reaching insurance deductibles. The accounts are wholly owned and controlled by the employer.

How Do Health Reimbursement Arrangements Work?

Health Reimbursement Arrangements provide a simple way for employers to help their workforce pay for medical care. Here are the typical steps involved:

Employer Contributions

The company decides on an amount to contribute annually to each employee’s HRA. Contributions can be a set dollar amount (e.g. $500) or prorated based on months worked. Employer deposits are not taxable income to the employee.

Employee Spending

Employees incur eligible healthcare expenses throughout the year and pay out-of-pocket. Costs may include deductibles, co-pays, prescriptions, dental work, eye exams, etc.

Claim Submission

Employees submit HRA claims along with documentation such as detailed receipts and explanation of benefits statements from the health insurance provider.

Claims Processing

The HRA administrator reviews claims, checks the eligibility of expenses, verifies documentation is present, and approves reimbursement amounts.

Reimbursement

Employees receive tax-free reimbursement from the company’s HRA funds for their approved medical expenses.

Account Rollover

Any unused HRA funds remaining at year-end automatically roll over to the following year. The account continues to grow as new employer contributions are added annually.

Types of Health Reimbursement Arrangements

There are three main types of Health Reimbursement Arrangements available in Canada:

Standard HRA

This is the most common type of reimbursement arrangement. The employer funds the HRA and defines permitted medical expenses up to a set reimbursement limit. Standard Health Reimbursement Arrangements reimburse out-of-pocket costs associated with employer-sponsored group health plans. Unused amounts roll over year-to-year.

Individual Coverage HRA

Also called an ICHRA, this model works similarly but can reimburse employees tax-free for individual health insurance policy premiums and other medical expenses. An individual coverage HRA works well for small businesses wanting to contribute to employee healthcare costs but not provide group insurance.

Qualified Small Employer HRA (QSEHRA)

Designed for companies with fewer than 50 full-time employees, a QSEHRA works like an individual coverage HRA. The main difference is reimbursement limits are capped by law at $5,850 individual / $11,800 family for 2022. Firms cannot offer a group health plan and use a QSEHRA.

Source: What Is QSEHRA? Everything You Need To Know

How Much and Who Pays for a Health Reimbursement Arrangement?

With an HRA, the employer provides 100% of the contributions. Employees cannot fund Health Reimbursement Arrangements through salary deductions like a health flexible spending account (FSA).

The employer can decide the annual contribution amounts allocated to each employee’s HRA. Typical factors used to determine amounts include:

  • Company size – Health Reimbursement Arrangements work well for small to mid-sized businesses.
  • Total benefits budget – Some allocate 10-15% to HRA funding.
  • Plan design – Employers can customize reimbursement limits and eligible expenses.
  • Employee demographics – Contributions amounts may vary based on class, tenure, age, or family status.
  • Location – Funding levels may differ across the company’s geographic footprint.

Many employers opt to set standard HRA contribution levels based on employee status, such as:

  • $700 annually for a single employee
  • $1,000 annually for an employee + spouse
  • $1,400 annually for a family

Amounts can be prorated by months of employment when workers join the company mid-year.

What’s Covered in Health Reimbursement Arrangements?

Unlocking Health Benefits: Your Handbook to HRA in Canada IDC
Unlocking Health Benefits: Your Handbook to HRA in Canada

Employers have broad flexibility when defining what healthcare expenses will be reimbursable under their HRA program.

Typical out-of-pocket costs covered include:

  • Group Health Benefits deductibles and co-payments
  • Dental services – cleanings, fillings, x-rays, crowns, bridges, orthodontia
  • Vision care – eye exams, glasses, contact lenses, laser eye surgery
  • Prescription drugs and medications
  • Counselling, psychotherapy, and mental health treatment
  • Chiropractic, physiotherapy, massage therapy, acupuncture
  • Hearing aids and batteries
  • Nicotine gum or patches for smoking cessation
  • Diabetic monitors, test strips, and supplies
  • Blood pressure monitors and cuffs
  • Braces, wheelchairs, walkers, canes, crutches, wrist/knee supports
  • Compression socks, support hose, orthopedic shoes
  • Ambulance transport
  • Fertility treatments and reproductive health costs
  • Lactation consultations
  • Nutrition counselling with a registered dietician
  • Weight loss programs prescribed by a doctor to treat obesity
  • Wigs or hairpieces needed for hair loss due to medical treatment

Ineligible expenses that Health Reimbursement Arrangements cannot reimburse per Canada Revenue Agency rules include:

  • Cosmetic procedures and treatments
  • Teeth whitening and veneers
  • Vitamins and supplements without a prescription
  • Gym memberships and fitness costs
  • Personal hygiene and grooming products
  • Homeopathic remedies and alternative medicines

HRA Claim Process Step-by-Step

Drawing funds out of an HRA follows a defined process:

Employee Incurs Expense

Employees or dependents receive medical care and pay the healthcare provider directly.

Save Receipts

The employee saves all itemized receipts and documentation related to the care received.

Submit Claim

The employee completes the HRA claim form, attaches supporting documentation, and submits it for reimbursement.

Claims Admin Review

The HRA administrator reviews the claim to verify the following:

  • Employee eligibility
  • Expense eligibility
  • Receipt validity
  • Available account balance
  • No duplicate submissions

Payment Approval

The claim review process determines whether the expense meets the requirements to issue reimbursement from the HRA.

Payment Processing

Once approved, reimbursement is processed by check or direct deposit to the employee.

Account Adjustment

The HRA administrator deducts the paid amount from the employee’s available account balance.

Who Manages the Health Reimbursement Arrangements?

Health Reimbursement Arrangements involve administrative processes around managing account balances, investments, reimbursement claims, payments to employees, and carrying over unused funds each year. This is handled by either internal staff or outsourced to experts.

Typically, companies use specialist HRA administrators or third-party administration firms (TPAs) to manage their plans. Services provided often include:

  • Online employee account access
  • HRA contribution and balance tracking
  • Claims submission portals
  • Claims verification and processing
  • Reimbursement payments via check, direct deposit, or debit card
  • Documentation and record-keeping
  • Account rollovers at year-end
  • Reports for employers on utilization and expenses
  • Customer service for employees

This administrative partnership allows employers to focus on their core business while leaving HRA management to skilled professionals. Fees for outsourced HRA administration average $6-12 per employee per month.

Advantages of Health Reimbursement Arrangements

Health Reimbursement Arrangements offer unique advantages for employers and their employees compared to other ways of paying for healthcare.

Benefits for Employers:

  • Lower premium costs: HRA-coupled plans have lower premiums than traditional policies.
  • Fixed costs: Contributions are defined upfront, allowing better cost control.
  • Reduced administration: No need to manage complex insurance plans.
  • Tax savings: Contributions are business expense deductions.
  • Attract/retain talent: Added benefits appeal to job seekers.
  • Lower absenteeism: Employees get needed care, minimizing sick time.
  • Freedom and flexibility: Employers control all HRA design elements.

Benefits for Employees:

  • Lower out-of-pocket costs: Paying expenses with tax-free HRA funds saves money.
  • Account rollover: Unused funds grow year-to-year.
  • Portable: Employees keep accounts even if they leave the company.
  • Tax savings: HRA reimbursements are income tax-free.
  • Employee empowerment: Workers manage their healthcare dollars.
  • Broad coverage: Health Reimbursement Arrangements can reimburse a more comprehensive range of expenses than insurance.
  • Convenience: Easy online account access and claims submission.

HRA Tax Treatment in Canada

HRA Deep Dive: Navigating Health Reimbursement in the Canadian Context IDC
HRA Deep Dive: Navigating Health Reimbursement in the Canadian Context

The tax implications of Health Reimbursement Arrangements in Canada have unique considerations:

  • Employer HRA contributions are not taxable benefits to employees.
  • Employee reimbursements from an HRA used to pay eligible medical expenses are not taxed as income.
  • Employer contributions to an HRA are deductible business expenses.
  • HRA investment gains and interest earned on unspent account funds are tax-free.
  • Any unused HRA balance over $500 is taxable income to the former employee upon termination.
  • If an employee dies, the HRA terminates. The remaining funds go back to the employer and are non-taxable employee benefits.

Health Reimbursement Arrangements provide favourable tax treatment for both companies and their workers. Employers gain business expense deductions while employees get tax-free healthcare funds.

How Do Health Insurance Reimbursement Work in Canada?

Canada’s universal healthcare system covers most necessary medical services under provincial government plans. However, many healthcare costs are still paid out-of-pocket by citizens, including prescription drugs, dental and vision care, physiotherapy, medical devices, mental health support, and more.

This is where supplemental health insurance and healthcare spending accounts like Health Reimbursement Arrangements help fill employee gaps. Health Reimbursement Arrangements reimburse workers for qualified medical expenses not fully covered under the public system.

Each provincial government plan reimburses doctors and hospitals for services rendered to residents based on fee schedules and contracted agreements. Private insurers also reimburse policyholders based on what medical care is covered in their plan designs.

Health Reimbursement Arrangements work in parallel – companies allocate tax-free funds that employees submit claims against to cover permitted medical costs. Any unused amounts remain available to reimburse future costs. In this way, Health Reimbursement Arrangements provide supplemental coverage.

HRA Communication Tips for Employees

Driving HRA adoption requires clear ongoing communication so employees understand how the accounts work and how to optimize them. Follow these tips:

  • Explain how Health Reimbursement Arrangements complement existing insurance coverage.
  • Highlight key plan details like contribution amounts, eligible expenses, claiming steps, etc.
  • Share videos explaining the tax advantages and how funds roll over each year.
  • Send periodic email reminders on submitting claims with deadlines.
  • Provide claims forms, FAQs, contact info, and documentation requirements.
  • Instruct how to check balances and submit claims through online portals.
  • Host annual benefits education events with HRA breakout sessions.
  • Promote the accounts in new hire onboarding processes.
  • Train managers to answer basic HRA questions for their teams.

The Future of Health Reimbursement Arrangements

Several emerging trends are shaping the evolution of Health Reimbursement Arrangements:

  • Rising Costs – Ongoing healthcare inflation will drive demand for cost-effective HRA options.
  • New Regulations – Changes to laws and tax rules could impact HRA parameters and adoption.
  • Consumerism Mindset – Workers want greater control over their healthcare dollars via personalized accounts.
  • Increased Adoption – More employers are now considering Health Reimbursement Arrangements as enrollment grows.
  • Post-Retirement Usage – Allowing continued HRA access for retirees to pay Medicare costs.
  • Innovative Designs – Some HRA plans help pay long-term care insurance or wellness program costs.
  • New Partnerships – Insurance carriers are developing turnkey HRA solutions supported by broad networks.
  • Focus on HDHPs – Pairing Health Reimbursement Arrangements with qualified high-deductible health plans will be prominent.
  • Workforce-Wide Plans – Extending HRA eligibility to part-time, contract, seasonal, and gig workers beyond full-time staff.

Overall, Health Reimbursement Arrangements are poised to take on an even more prominent benefits role as employers seek affordable ways to provide healthcare assistance for an increasingly diverse and aging employee population.

Conclusion

Your Health, Your Reimbursement: Understanding HRAs in Canada. IDC
Your Health, Your Reimbursement: Understanding HRAs in Canada.

With rising healthcare costs in Canada, Health Reimbursement Arrangements offer an affordable way for companies to help their workforce pay for medical expenses not fully covered by provincial government health plans.

Health Reimbursement Arrangements provide tax-advantaged accounts funded by employers that reimburse employees for dental, vision, prescription drugs, therapy, medical devices, and moreโ€”the accounts roll over year-to-year, allowing unused funds to accumulate over time for future costs.

For employers, Health Reimbursement Arrangements offer cost controls, tax deductions, reduced administration, and improved employee satisfaction. And workers benefit from lower out-of-pocket costs, tax-free reimbursements, and empowerment in managing healthcare.

Now that you understand all aspects of Health Reimbursement Arrangements โ€“from contribution guidelines and eligible expenses to claiming processes and future trends โ€“ you can leverage their advantages as an employer or employee in Canada.

Visit Ebsource for more Ebs employee benefits news.

Health Reimbursement Arrangement FAQs

How are HRA accounts funded?

Employers fund HRA accounts entirely through tax-deductible contributions. Employees cannot contribute to Health Reimbursement Arrangements. Companies decide on annual contribution amounts based on plan design and budgets.

Who is eligible for HRA reimbursement?

Standard plans allow medical expense reimbursement for employees, spouses, and dependents as defined by the employer's HRA. Retirees may also participate if the plan permits. Some employers extend access to part-time workers.

What medical expenses are reimbursable?

Health Reimbursement Arrangements reimburse deductibles, co-pays, prescription drugs, dental, vision, psychotherapy, chiropractic, massage therapy, medical devices, smoking cessation programs, and more. Ineligible expenses include cosmetic procedures, gym memberships, and over-the-counter vitamins.

Do HRA funds expire?

Unlike health FSAs, leftover HRA funds roll over at year-end without expiry as long as the person remains employed. If an employee leaves the company, access to HRA funds stops unless they elect COBRA coverage (18-36 months).

Are HRA reimbursements taxable income?

HRA reimbursements made for eligible medical expenses are not taxed as income. Employer contributions also receive tax-free treatment.

How are claims reimbursed from an HRA?

Employees submit claims and supporting documentation, which are reviewed and approved by the HRA administrator. Once approved, reimbursement is made by check, direct deposit, or debit card, depending on plan design.

Can Health Reimbursement Arrangements cover insurance premiums?

Individual coverage Health Reimbursement Arrangements and QSEHRAs (Qualified Small Employer Health Reimbursement Arrangements) can reimburse employees tax-free for personal health insurance policy premiums. This provides an alternative to group plans. Standard Health Reimbursement Arrangements do not cover premiums.

Article Sources

At Ebsource, our mission is to equip Canadians with comprehensive and truthful information to make prudent choices about their employee benefits. We draw wisdom from experienced financial professionals to ensure our guidance aligns with industry best practices. The statistics we cite come from respected government and industry organizations like Statistics Canada and the CLHIA to guarantee accuracy.

Our recommendations stem from rigorous, unbiased research of the major employee benefits providers in Canada. This allows us to tailor suggestions to individuals’ specific budgets and needs. Ebsource maintains high standards of objectivity, transparency, and independence in all our materials. We pride ourselves on providing advice readers can trust by citing reputable sources and adhering to editorial principles. As Canada’s most reliable source for employee benefits news, we are dedicated to empowering Canadians to make informed benefits decisions.

What Is a Health Reimbursement Arrangement (HRA)? – ca.indeed.com
Is Health Insurance Reimbursement Possible? Factors to Consider – groupenroll.ca

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