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Healthcare Reimbursement Account (HRA)

Perhaps you have health care bills that aren't completely covered by the medical, hearing, dental, and vision plans, such as deductibles, co-payments, or special services. If so, health care reimbursement account can help. Under current federal law, you can pay for your out-of-pocket health care and dependent care expenses with tax-free dollars. This means you pay less in taxes each year.

The health care reimbursement account works like a personal checking account. Each plan year, you decide how much you want to contribute to your personal account, up to the limits. You can have a certain amount deducted each month from your pay and put it into the health care reimbursement accounts. During the plan year, as you have eligible health care expenses, you file claims and are reimbursed with the tax-free dollars in your account. 

It's very important to calculate your annual deposit carefully. The
IRS requires money left in your accounts at the end of the plan year (June 30, 2002) to be forfeited. Because of this "use it or lose it" rule, it's important that you anticipate your expenses when deciding on your account contributions. You may request reimbursement for expenses incurred during the plan year for up to 60 days after June 30, 2002. All forfeited money belongs to ASEA/AFSCME Local 52 Health Benefits Trust.

Contributions to your health care reimbursement account are made from your pay before taxes are withheld. This means your taxable income is reduced. As a result, the amount of federal income tax you pay is also reduced. 

Assume your income is $45,000 a year and you have $2,000 of eligible health care expenses during the year. Here's what participation in the health care spending account can mean to your net pay:

 

 

 

WITH PARTICIPATION

WITHOUT PARTICIPATION

Annual Income

$45,000

$45,000

Contribution to Account

$2,000

$0

Taxable Income

$43,000

$45,000

Estimated Taxes*

$9,890

$10,350

After-tax Expenses

$0

$2,000

Net Pay (after health care expenses)

$33,110

$32,650

Savings

$460

$0

*Assuming federal and Medicare taxes of 23%

 

 


In this example, by participating in the spending account, your net pay for the year after health care expenses are deducted is $460 more because you pay less in taxes.
IRS regulations allow a variety of specific expenses to be paid back to you from your health care spending account. Below is a partial list of these eligible expenses. To be eligible, all items must be prescribed and/or performed by a licensed provider, and some must be prescribed and/or provided by a physician. To protect the plan's tax-qualified status, the Administrator will make the final determination on eligibility of an expense and/or provider requirements.

 

REIMBURSABLE HEALTH CARE EXPENSES

Acupuncture - performed by a licensed practitioner
Ambulance
Analysis - psychotherapy by a licensed practitioner when medically necessary
Birth Control
Car Controls - special controls for the handicapped
Chemical Dependency - at a treatment center
Chiropractors - for services within scope of license
Contact Lenses - including contact lens solutions
Crutches - purchase or rental
Deductibles and Coinsurance - not paid by the plan
Dental Fees - x-rays, fillings, braces, extractions, false teeth, treatments, etc.
Drugs and Medicines - prescriptions, including those for smoking cessation (over-the-counter drugs are NOT eligible)
Eyeglasses - lenses, frames, exams
Founder's Fee - monthly or lump sum fee to a retirement home (covers portion specifically for medical care)
Guide Dog - purchase for blind or deaf
Halfway House - care to help individual adjust from life in a mental hospital to community living
Health Care Equipment - excluding general use furniture, household items, or appliances
Hearing Aids and Hearing Exams
Hospitalization - including private room charge
Laboratory Fees
Laetrile - if legally qualified as a drug where purchased
Learning Disability - tutoring by licensed school or therapist
Lifetime Care - advance payment to private institution for lifetime care, treatment, or training of mentally or physically handicapped patient

Medical Information Plan - fees for maintaining medical information on computer
Medicines - Prescribed and legally obtained drugs and medicines (excludes over-the-counter drugs, even with a prescription)
Nursing Home - confinement for illness/injury
Nursing Service - by registered nurse or licensed practical nurse for medical care
Optometrist - for services within scope of license
Orthodontia
Oxygen
Physicals
Physical Therapy
Psychologist - for services within scope of license
Radial Keratotomy 
Special Schooling - to relieve handicap
Sterilization
Surgery - Including experimental
Syringes, Needles, and Injections
Telephone - Special for deaf
Television - Audio display equipment for the deaf
Therapy - Physical, occupational, or speech therapy by a licensed therapist
Transplants
Vitamins and Mineral Supplements - prescribed for treatment of illness
Well-Baby Care
Wheelchairs
Vaccinations and Immunizations
X-ray Fees
NOTE: cosmetic surgery or procedures (such as tooth bleaching) and insurance premiums are not eligible expenses.

 


Here are some things to think about as you decide how much to contribute to your health care spending account:
  • Expenses you may have that are not covered by the health plans but are reimbursable from this account
  • How much your deductibles are expected to be for the plan year
  • An estimate of the total out-of-pocket maximum you could pay
  • What your coinsurance and co-payments will be
  • How much you paid for health care costs during the last plan year.



When estimating your health care expenses for the year, remember that our plan year runs from July 1 through June 30. Carefully estimate the eligible expenses you will accrue for that period, including deductibles, coinsurance, co-payments, and other out-of-pocket amounts as well as uncovered services. 

Contributions must be at least $20 a month. You can contribute up to $5,000 each plan year to a health care spending account. For example, if your out-of-pocket health care costs were $500 during the last plan year, and you expect similar out-of-pocket expenses this year, you may want to set aside $40 a month for the health care spending account.

If you use the health care spending account to pay for eligible expenses, you cannot take a tax deduction on your income tax for the same expenses. (You're currently allowed a deduction on your tax return for expenses that total more than 7.5% of your adjusted gross income.) You must choose which is more advantageous to you; your tax adviser can help.



 

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