How Does an HRA Work?
Many employers offer Health Reimbursement Arrangements (HRAs) as part of their benefits package. While most people understand how a Flexible Spending Account (FSA) or Health Savings Account (HSA) works, HRAs operate somewhat differently. Because of the differences, many people aren’t sure how an HRA works. Learn more below.
How Does an HRA Work?
Who funds the HRA?
No matter the type of HRA, your employer funds the benefit. Employees do not pay into an HRA benefit account.
Do I pay taxes on the HRA?
No. HRAs do not count toward your taxable income, making it a tax-free benefit.
How much do I get from an HRA benefit?
That depends on the HRA type and your employer’s plan. There are 4 different HRA plan types. The annual maximum limit that each employee can receive is as follows:
- Traditional Group HRA – No maximum annual limit.
- Individual Coverage HRA (ICHRA) – No maximum annual limit.
- Excepted Benefit HRA (EBHRA) – Annual contribution limit is $2,100.
- Qualified Small Employer HRA (QSEHRA) – $6,150 for single employees and $12,450 for employees with a family.
Keep in mind, your employer sets the annual limit within the allowable guidelines. It may be as much as the annual maximum or it could be less.
What can I spend the HRA money on?
How you can spend your HRA dollars depends on several things. First, the IRS determines what is and is not considered an eligible expense. Second, each HRA plan has different requirements. Third, your employer can choose to restrict how the funds are spent, as long as the restrictions fall within the IRS regulations.
- Group HRA – Use for any eligible healthcare expense. Common expenses include medications (over-the-counter and prescription), copays, dental care, and eye care.
- ICHRA – Use for non-group insurance premiums (individual health insurance, not insurance not offered through your employer). If your plan allows it, you can use it for other healthcare expenses.
- EBHRA – Use for ‘excepted’ benefits (those not included in a typical employer health insurance plan) and related out-of-pocket expenses. This can include dental and vision expenses and premiums, COBRA premiums, and short-term disability insurance premiums.
- QSEHRA – Use for individual health insurance premiums, dental and vision premiums, and other eligible out-of-pocket expenses
How does an HRA work for spending and reimbursement?
Your employer may fund the HRA on a set schedule (weekly, monthly, quarterly, semi-annually, or annually) or only in response to approved claims. Generally speaking, first you have to pay the expense. Then you submit a claim to your benefits administrator with a detailed receipt or insurance explanation of benefits (EOB). Once the claim is approved, you get reimbursed from the HRA.
How do I get more information about my HRA plan, expenses, and reimbursement rules?
Contact your HR department or benefits administrator. They should provide you with a Summary Plan Description (SPD). The SPD should cover all information about how much your benefit is worth, eligible expenses, how to spend the benefit and receive reimbursement, among other important information.
DataPath’s Captain Contributor program educates and engages employees about tax-advantaged healthcare benefits.