Health Reimbursement Arrangements (HRAs) are employer-owned benefit accounts that allow employees to use tax-free money to pay for qualified medical expenses. This HRA overview will highlight information about contributions, expenses, reimbursements, portability, and more.
HRAs are owned by their sponsoring employers, and each plan is unique to the employer. Your HRA plan is likely to be different in at least some way from that of your spouse or a friend who has an HRA through a different employer.
Your employer decides how much is put into your HRA account. All employees with Employee Only coverage should receive the same benefit, and all employees with Family coverage should receive the same benefit. HRA accounts are funded solely by the employer.
Another difference with HRA accounts, compared to other account types, is that the employer decides the funding frequency. Some will deposit the full amount into employee HRA accounts at the beginning of the year. Others will deposit pro-rata shares of the annual amount either semi-annually, quarterly, monthly, or even by pay period. Still others will fund by claims, which means they deposit funds on a periodic basis equal to the total of approved reimbursement claims waiting to be paid.
If you spend all your HRA funds before the end of the year, you’ll have to pay for any further medical expenses out-of-pocket. If you have an unused balance at the end of the year, your employer’s plan may allow rollover to the next year. Check with your HR or benefit administrator to find out if your HRA has rollover or not.
The sponsoring employer decides which IRS-approved expenses the HRA will cover. Most traditional HRAs cover deductibles, coinsurance, and copays not covered by the company’s group health insurance plan. Some allow additional expenses.
It’s important to note that traditional HRAs cannot be used to pay or reimburse for health insurance premiums under the Affordable Care Act (ACA). However, two recently authorized types of HRAs can be used for that purpose. They include the Qualified Small Employer HRA (QSEHRA), available since 2017, and the Individual Coverage HRA (ICHRA), available since 2020.
HRAs often do not offer a debit card because of the way the benefit pays out. If a debit card is not available, you will need to file a claim for reimbursement after you have incurred an eligible expense. It’s very important that you keep the Explanation of Benefits (EOB) from the insurance company or the receipt from your medical provider. Reimbursement claims must detail the expense you incurred, when the product or service was received, who provided it, and how much it cost. Credit card slips and cancelled checks are not allowable receipts because they do not provide enough information about the purchase.
HRAs are owned by the employer and stay with the employer if not used. If you leave the company, retire, or are terminated, any unused funds remain with the employer. Some plans may allow retirees to enroll in a special retirement HRA plan as part of a health coverage package.
If you use healthcare expenses as a tax deduction, expenses that were paid for or reimbursed by an HRA cannot be counted toward the deduction. If you have an HSA or FSA along with your HRA, you cannot submit the same expense to more than one of those accounts.
To find out if your company offers an HRA, or to determine what your company’s HRA plan covers, contact your HR or benefits administrator.