If you are concerned with how your employees will react to the substantial out-of-pocket expenses of a qualified high deductible health plan (QHDHP), you can give them some peace of mind by reimbursing a portion of their qualified medical expenses through a Health Reimbursement Arrangement. You can fund the reimbursements using premium savings gained by switching from an expensive, low deductible plan to an economical, high deductible plan.

Contributions made by the employer can be excluded from employee’s gross income, reimbursements may be tax free if used to pay for qualified medical expenses, and any unused amounts in the HRA can be carried forward for reimbursements in later years.

Costs associated with qualified medical expenses incurred by employees and their spouse and dependents, as long as they are dependents on the employees tax return, are reimbursable through an HRA.