Health Reimbursement Arrangement (HRA): Your complete guide

A Health Reimbursement Arrangement in the UAE is a method for covering your employees’ healthcare outside of traditional insurance.

But how do they work, what are their advantages, and how do they compare to alternative solutions?

A HRA is used to cover out-of-pocket medical costs and brings flexibility for businesses and their teams in how they arrange their agreements.

Employers across the UAE, including Dubai, are using HRAs to help manage healthcare expenses while maintaining benefits for their employees.

However, these agreements alone are typically not sufficient to satisfy the UAE’s mandatory health insurance requirements.

The good news is, they can often be combined with your group plan.

How a Health Reimbursement Arrangement (HRA) works

As an employer, you and your team members agree on the limits of your HRA plan and what disbursements will cover.

These terms can vary, but typically, there are four common features:

1. The HRA Plan must be funded by the employer
2. Employees pay for eligible healthcare costs upfront
3. Claims are submitted with proof of payment
4. The employer reimburses the approved amount

Types of HRAs

If you’re considering a Health Reimbursement Arrangement in the UAE with your employees, there are different options for different purposes, such as:

• Qualified Small Employer HRA (QSEHRA)
  • For companies with fewer than 50 full-time staff
  • Cannot be combined with a group health plan
• Individual Coverage HRA (ICHRA)
  • Reimburses employees for personal insurance premiums and expenses
• Group Coverage HRA (GCHRA)
  • Adds to existing group insurance
  • Covers costs that insurance does not
• Retiree HRA
  • Helps former employees with post-retirement medical expenses

Benefits of Health Reimbursement Arrangements

A health reimbursement arrangement in Dubai can be both flexible and help cost management. Here’s why it's an attractive option for many employers.

• Employers set fixed reimbursement amounts

This allows your business to plan its overall benefit expenses with a greater degree of accuracy. Unlike traditional insurance plans, where premiums can rise unexpectedly, a HRA provides your business with clear cost boundaries from the start.

• Employees decide how to spend the funds

Rather than being restricted to a provider’s plan, your employees can use their allocated funds based on personal healthcare priorities, whether that’s prescription costs, diagnostics or outpatient visits.

• Reimbursements are tax-free

For eligible expenses, employees receive funds without tax deductions. This provides more value for your team and makes HRAs a more efficient way to cover healthcare costs compared to direct payments or allowances.

• Offers control over healthcare spending

As your employees gain more flexibility, your business enjoys more clarity and oversight. It's easier to track how healthcare budgets are being used, while employees make informed choices without being limited by a fixed provider network.

A well-managed employee health reimbursement arrangement in Dubai supports retention and improves satisfaction levels with the benefits provided.

When employees feel empowered to manage their healthcare spending and see value in what they are receiving, they’re more likely to stay committed to your organisation.

Limitations of Health Reimbursement Arrangements

While a health reimbursement arrangement has many advantages, it’s important to weigh the limitations before implementation:

• It’s limited to what the employer funds

The available benefit employees may receive is capped at the agreed amount. Once employees reach this limit, they must cover additional costs out-of-pocket or through other insurance.

• Employees must handle claims

Unlike regular group insurance, employees are responsible for submitting claims and ensuring documentation meets policy requirements. This can be something of a burden for some and frustrating when things don’t go smoothly.

• Not all expenses are covered

Only approved medical costs are reimbursable. This means some everyday health-related purchases may not qualify, even if they're perceived as essential by the employee, also creating potential frustration.

• Funds do not always carry over year to year

Depending on how you design your plan, unused funds may or may not expire at the end of the benefit year. This can affect long-term planning or even wasted expense without clear communication on the terms.

Pros and cons of HRAs

Health reimbursement arrangements in the UAE are not suitable for every type of business relative to  the mandatory insurance requirements. HR must  weigh the pros and cons before deciding if it's the right avenue for their organisation.

Pros:

1. Cost control for employers
   HRAs allow companies to offer benefits without the unpredictability of insurance premiums.
2. Tax benefits for both parties
   Reimbursements are often tax-free for employees and deductible for employers.
3. Encourages better use of healthcare
   With spending in their hands, employees tend to make more thoughtful healthcare decisions, potentially reducing waste and unnecessary claims.

Cons:

1. Not a substitute for full insurance
   A HRA cannot replace the security of a comprehensive group health insurance policy, especially for major medical events.
2. Claim processing adds admin time
   Without automation or third-party support, HR or finance teams may face delays or errors in managing reimbursements.
3. May not fit all business models
   HRAs work best in companies with stable headcounts and consistent budgeting. Startups or high-turnover industries may find them less predictable or scalable.

Health Reimbursement Arrangements vs. other arrangements

What is the difference between HRA and HSA?

Both HRAs and HSAs help manage healthcare costs, but they function differently in terms of funding, ownership, and flexibility.

Understanding these differences can help you choose the right option for your team’s needs.

1. A HRA is funded only by the employer
2. A HSA includes employee and employer contributions
3. HSA funds belong to the employee and are portable
4. HRAs are not portable and are less flexible, but involve no employee funding

HRA funding and portability

Funding and portability are key considerations when evaluating a health reimbursement arrangement. These factors determine how long employees can access benefits and what happens if they leave the company.

• Employer decides the contribution amount
• Funds are not portable if you leave your job
• Some plans allow rollovers to the next plan year

An Employer Health Reimbursement Arrangement in Dubai can be structured to align with your business needs, although larger firms have more resources to provide more support and flexibility.

HRA tax advantages

• Employer contributions are tax-deductible
• Employees do not pay tax on reimbursements
• No payroll tax on HRA funds

A Health Reimbursement Arrangement in the UAE helps businesses deliver cost-effective healthcare support.

Need support with setting up a HRA or comparing it to your current group policy?

Speak to AES Health for advice tailored to your company’s structure, budget, and employee needs.

FAQs

What is the meaning of HRA?

A Health Reimbursement Arrangement (HRA) is an employer-funded plan that reimburses employees for approved medical expenses. It offers financial support for healthcare without requiring employees to purchase a specific insurance policy.

How does a HRA work?

Here’s how a typical HRA process functions:

• The employer allocates a fixed amount of money for each employee
• The employee pays out-of-pocket for qualified medical expenses
• The employee submits receipts or claims to the administrator
• The employer reimburses up to the agreed limit

All funds come from the employer, and reimbursement only occurs after costs are incurred.

Can I cash out my HRA?

No, you cannot withdraw or cash out your HRA balance. It's not treated as salary or a benefit that can be converted to cash. Reimbursements are only available for eligible medical expenses as defined in your HRA plan.

What qualifies for HRA reimbursement?

Approved HRA reimbursements usually include:

• Doctor visits
• Diagnostic tests
• Prescriptions
• Outpatient treatments
• Specialist consultations

Expenses like cosmetic procedures, gym memberships, or over-the-counter supplements often do not qualify. Always refer to your company’s specific HRA policy for a full list. Get in touch with us today to discuss how we can help.