Health Reimbursement Arrangements (HRAs) are employer-sponsored benefit plans that allow employees to withdraw tax-free money to pay for qualified medical expenses. This HRA overview provides valuable information on contributions, expenses, reimbursements, portability, and more.
The first thing to know and remember is that each HRA plan is unique to the employer.
HRAs are funded only by the employer. Employees do not contribute one cent.
Keep in mind, there are no federally-mandated limits on employer contributions to regular HRA plans. Employers choose how much to fund their plans. Each employee should receive the same benefit amount, though totals may differ between single employees and those with dependents. Some companies fund participant accounts in full at the beginning of the plan year, while others may fund them monthly, quarterly or semi-annually.
The employer can set plan parameters to reimburse any medical expense outlined under IRS Section 213 of the Internal Revenue Code; they have the authority to choose all or just a few. Again, each plan is different, though most HRAs cover common medical expenses such as deductibles, coinsurance, and copays. Plans may allow for other medical costs not covered by health insurance as long as they are IRS-approved.
It’s important to note that standard HRAs cannot be used for health insurance premiums under the Affordable Care Act (ACA). However, the Cures Act allows small employers (fewer than 50 employees) who do not have a group health plan to offer a QSEHRA for premium reimbursement.
So, how do you spend your HRA? Once you have a qualified medical expense, you’ll have to pay for it first, then file a claim for reimbursement. Therefore, it’s important to keep all your receipts. Some HRAs have an account-linked debit card, so talk to your benefits administrator for more information.
If you spend all your HRA funds before the end of the year, no additional funds are added to the account; any further medical expenses are paid for 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.
HRAs are owned by the employer and are not portable. That means you cannot take your HRA with you, unlike with a Health Savings Account (HSA). 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.
As with other tax-friendly healthcare accounts, you cannot deduct reimbursed expenses on your tax returns. If you have an HSA or FSA along with your HRA, it’s illegal to “double-dip” by submitting the same expenses for reimbursement from the other accounts.
To find out if your company offers an HRA, or to determine what your company’s HRA plan covers, contact your human resources department