Health Reimbursement Arrangement (HRA)

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Health Reimbursement Arrangement (HRA)

What is an HRA?

A Health Reimbursement Arrangement (HRA) is an employer-funded benefit that reimburses employees for qualified medical expenses and, depending on the HRA type, some insurance premiums. Reimbursements are tax-free to employees and tax-deductible for employers. HRAs are established and administered by employers; they are not owned by employees.

How HRAs work

  • Employers set the HRA plan, define eligible expenses, and determine the maximum reimbursement amount for each eligible employee or employee class.
  • HRAs are not individual accounts. Employees pay eligible medical costs first and then submit claims for reimbursement. Some employers provide HRA debit cards to enable reimbursement at the time of service.
  • Employers may allow unused HRA funds to roll over to the next year, but rollover rules and limits are set by the employer.
  • If an employee leaves the company, the HRA generally does not travel with them (non‑portable), unless the employer’s plan specifies otherwise.

Types of HRAs

  • Qualified Small Employer HRA (QSEHRA)
  • For employers with fewer than 50 full‑time employees.
  • Can reimburse individual insurance premiums and other medical expenses up to IRS limits (example limits: 2024 — $6,150 per individual, $12,450 per family).
  • Individual Coverage HRA (ICHRA)
  • Allows employers to reimburse employees for individual health insurance premiums (on‑ or off‑marketplace) and other qualified medical expenses.
  • Whether employees remain eligible for premium tax credits depends on ICHRA affordability and whether they accept the ICHRA.
  • Excepted Benefit HRA (EBHRA)
  • Offered alongside group health insurance.
  • Reimburses limited expenses (e.g., dental, vision, short‑term coverage) up to a specified annual amount (example: $1,950).

Eligible and ineligible expenses

Eligible expenses generally mirror IRS definitions of medical and dental costs incurred to prevent or treat illness or injury. Common eligible items include:
* Prescription medications and insulin
* Doctor visits, specialist care, and preventive exams
* Mental health and substance‑abuse treatment
* Medical equipment (crutches, eyeglasses)
* Transportation for medical care
* Insurance premiums (for some HRA types, such as ICHRA and QSEHRA)

Common ineligible expenses:
* General wellness or maintenance items (most vitamins, gym memberships)
* Cosmetic procedures (e.g., teeth whitening)
* Maternity clothing, child care for a healthy baby, funeral costs
* Nonprescription medications (unless specifically allowed)

Advantages

  • Employer-funded with predictable costs for employers.
  • Reimbursements are tax-free to employees and tax-deductible to employers.
  • Can help employees cover expenses not paid by insurance, including premiums in certain HRA types.
  • Employers can design plans to target specific employee classes or needs.

Limitations

  • HRAs are employer-controlled — employers decide contribution amounts, eligible expenses, rollover rules, and whether funds are portable.
  • Not portable for most plans: employees generally cannot take unused balances when they leave.
  • Employees must typically pay expenses up front and request reimbursement.
  • Coverage and allowable expenses can vary by plan; some IRS‑qualified expenses may still be excluded by the employer.

How HRAs compare with FSAs and HSAs

  • Flexible Spending Account (FSA)
  • Employee-funded via pretax salary contributions.
  • Employer may offer limited carryover or grace period, but unused funds are often forfeited.
  • FSAs cannot be used to pay insurance premiums.
  • Health Savings Account (HSA)
  • Individually owned and portable; funds remain with the employee after leaving an employer.
  • Must be paired with a high-deductible health plan (HDHP).
  • Contributions may be made by employee and/or employer; funds do not expire.
  • HRAs differ in that they are employer-funded, usually non‑portable, and reimburse expenses rather than holding employee-owned funds.

Funding, portability, and administration

  • Fully funded by the employer. Employers may set different contribution amounts by class of employees, but employees within the same class must receive the same treatment.
  • Employers administer claim approval and reimbursement rules; some third-party administrators manage documentation and payments.
  • Rollover of unused funds is optional and set by the employer; there is no universal requirement that funds roll over.

Tax implications

  • Reimbursements made through an HRA are excluded from an employee’s taxable income and are generally deductible business expenses for the employer.
  • Tax treatment of premiums and whether employees can claim premium tax credits (for ICHRA participants) depends on plan design and affordability.

Using an HRA effectively

  • Review your employer’s HRA plan document to understand eligible expenses, documentation requirements, rollover rules, and whether a debit card is provided.
  • Coordinate HRA usage with any FSAs or HSAs you have — employers may designate which plan pays first for overlapping expenses.
  • Keep receipts and medical statements to substantiate claims.

Key takeaways

  • An HRA is an employer-funded, tax-advantaged reimbursement program for qualified medical expenses and, in some cases, insurance premiums.
  • HRAs are controlled by employers and are typically non‑portable; plan rules (eligibility, rollover, covered expenses) vary.
  • Common HRA types include QSEHRA, ICHRA, and EBHRA, each suited to different employer sizes and goals.
  • Compare HRAs with FSAs and HSAs to decide how best to coordinate benefits and out‑of‑pocket planning.

For specific coverage rules, contribution limits, or tax implications, consult your employer’s plan documents or a tax/benefits advisor.