If you are looking for a way to reduce your employee benefit costs, you may want to consider using a health reimbursement arrangement (HRA). An HRA is an employer-funded health benefit account for individual employees that may be used to pay their medical expenses and health insurance premiums. This type of plan is generally more economical and more flexible than other health benefit plans. It also has more features that provide favorable treatment for federal income tax purposes.

Under an HRA, the contributions you make are tax-deductible, and the amounts your employees receive are generally excluded from the employees' income. In addition, any excess amounts at the end of the year can be carried over to future years without being lost.

In order to receive favorable tax treatment, an HRA must meet the following requirements:

	The plan is paid for only by you and is not provided by an employee salary-reduction election or under an employee benefit cafeteria plan
	The plan reimburses the medical expenses of the covered individual and his or her spouse and dependents; and
	The plan reimburses a covered individual up to a maximum dollar amount for any given period of coverage. Any unused portion of the maximum dollar amount at the end of that period is carried forward to increase the maximum reimbursement amount in subsequent coverage periods.