Health Reimbursement Arrangement (HRA)

Overview of Health Reimbursement Arrangements (HRAs)

A Health Reimbursement Arrangement (HRA) is a health benefit plan fully funded by employers to reimburse employees for eligible medical expenses and sometimes health insurance premiums. Unlike Health Savings Accounts (HSAs), which employees can contribute to, HRAs are solely financed by employers, offering a tax-free way to cover healthcare costs that employees pay out of pocket.

Historical Context and Regulatory Framework

HRAs were introduced to provide companies with a flexible alternative to traditional health insurance coverage and to help employees with medical expenses. The Affordable Care Act (ACA) and subsequent IRS guidance have established rules governing how HRAs operate, what expenses qualify, and how they integrate with other health benefits like HSAs.

How HRAs Work

Employers allocate a fixed annual amount to an HRA for each eligible employee. When employees incur qualified medical expenses, they submit documentation such as receipts or bills to their employer or the plan administrator for reimbursement. Reimbursements made to employees are tax-free, and employers receive a tax deduction for these contributions.

Funds in HRAs may or may not roll over year to year, depending on the employer’s plan design. Unlike Flexible Spending Accounts (FSAs), HRAs generally do not require employees to forfeit unused funds annually, but employers can enforce “use-it-or-lose-it” policies if specified.

Types of HRAs

• Integrated HRAs: Paired with an employer’s group health plan, reimbursing expenses including deductibles and copays.
• Qualified Small Employer HRAs (QSEHRAs): Designed for small businesses with fewer than 50 employees that don’t offer group health insurance, allowing employees to purchase individual coverage.
• Individual Coverage HRAs (ICHRAs): Allow employees to select and buy individual health insurance plans and get reimbursed for premiums and qualified expenses.

Eligibility and Coverage

Eligibility for an HRA depends on the employer’s offering and plan specifics. Generally, employees of companies offering HRAs can participate. Some plans extend coverage to employees’ dependents, but this varies by plan. HRAs are not portable; funds remain with the employer if the employee leaves.

Common Uses and Examples

• Medical Expense Reimbursement: Payment for doctor visits, prescriptions, dental and vision care can be reimbursed without tax impact.
• Insurance Premium Assistance: Some HRAs reimburse individual insurance premiums, which can reduce an employee’s overall healthcare cost.

Example:

• Sarah’s employer credits $200 monthly to her HRA. After spending $150 on treatment, Sarah submits receipts and receives a tax-free reimbursement.
• John works for a small company offering a QSEHRA. He purchases insurance through the marketplace, then gets reimbursed for premiums paid, lowering his health expenses.

Best Practices for Managing an HRA

• Keep accurate records and receipts of all medical expenses for reimbursement.
• Understand your specific HRA plan rules, including rollover policies and eligible expenses.
• Coordinate the HRA with other benefits such as HSAs or FSAs for maximum tax efficiency.
• Plan healthcare spending throughout the year to avoid forfeiting funds.

Common Misconceptions

• Employees cannot contribute to HRAs: Only employers fund HRAs.
• Funds always roll over: Rollover depends on the employer’s plan; some do, others don’t.
• HRAs only cover insurance premiums: They can also cover a wide range of qualified medical expenses.

Frequently Asked Questions (FAQs)

Can I use my HRA with any health insurance plan? It depends. Some HRAs require enrollment in the employer’s group plan, while others like Individual Coverage HRAs allow use with individual insurance.

Are HRA funds taxable? No, employer contributions and reimbursements for qualified expenses are tax-free according to IRS rules.

What expenses qualify? Eligible expenses typically include medical care, dental, vision, prescription drugs, and in some cases, insurance premiums.

Can I keep my HRA if I change jobs? Typically not; HRAs are employer-owned, and unused funds usually revert to the employer.

Summary Table of HRA Features

For additional information on related health benefit accounts, see our article on Health Savings Accounts (HSA).

References and Resources

• IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans IRS.gov
• HealthCare.gov: Understanding Health Reimbursement Arrangements HealthCare.gov HRA Overview
• Consumer Financial Protection Bureau: Health Reimbursement Arrangements CFPB HRA Guide

This content is accurate as of 2025 and reflects the latest IRS guidelines and consumer protections related to HRAs.