Health Reimbursement Account (HRA)

What is a Health Reimbursement Account (HRA)?
 

A Health Reimbursement Account or HRA is a type of plan that reimburses employees for qualified medical expenses that they incur up to a specified dollar amount limit per year. What’s unique about an HRA is that it is completely set up, owned, and funded by the employer. Meaning, the employer decides how much money to put into the HRA. The employer also outlines the medical expenses that are deemed eligible or qualified for reimbursement. Typically, qualified expenses for reimbursement are medical, dental, vision, and pharmacy. Also, the reimbursements given to employees are tax-free.

What are other names for Health Reimbursement Account (HRA)? 
 

A Health Reimbursement Account (HRA) is also known as “Health Reimbursement Arrangement” or Health Reimbursement Account (HRA-based) Medical Plan. 

How does an HRA work? 
 

An HRA is funded and owned by an employer. Employees do not have to make contributions to the fund. The employer determines the amount to be put into the fund and the dollar amount limit that can be used per year. In an HRA, the employee incurs the medical expenses first and then requests for the expenses to be reimbursed through the company’s HRA benefit. In some cases, employees can use the HRA benefit when it is needed and not have to spend out-of-pocket. This can happen if the employer provides an HRA debit card. Again, this will depend on the employer. 

Furthermore, the employer can also extend HRA coverage to an employee’s spouse and dependents. If there are unused HRA funds at the end of the year, the employer may also allow these to be carried over to the following year. Similarly, the employer can also set a limit on how much of the unused funds can be rolled over. 

Will I be able to reimburse all medical and healthcare expenses? 
 

No, not all expenses that you incur can be covered by an HRA. As per IRS guidelines, medical expenses are those that are spent to treat or prevent a physical or mental ailment. These expenses should be necessary and not expenses for general health maintenance. Examples of expenses that do not qualify for reimbursement are teeth whitening, vitamins, maternity clothes, gym membership fees, non-prescription medicines, and other expenses that are not medically necessary. 

If you are an employer, a written HRA policy can include details on what kind of expenses are qualified medical expenses. This way, employees have a reference to check before requesting reimbursement. 

What are the benefits of having a Health Reimbursement Account (HRA)?
 

A Health Reimbursement Account (HRA) offers benefits to both employers and employees. For employees, the primary advantage of an HRA is that it can ease the financial burden of having to pay for certain medical expenses, tests, and prescription medications. The reimbursements from an HRA are also tax-free for employees. Since it is funded by the employer, employees do not have to worry about making monthly contributions to the HRA. Lastly, HRAs can be used to pay for insurance premiums if the employer allows them. 

For employers, setting up an HRA also provides tax benefits. Reimbursements through an HRA are tax-deductible. Since it is owned by employers, they get to decide and anticipate the expenses per year. Lastly, having an HRA can also increase employee satisfaction and retention. 

Is a Health Reimbursement Account (HRA) the same as a Health Savings Account (HSA)?
 

No, HRAs and HSAs are not the same. Although HRAs and HSAs focus on health-related expenses, some differences set them apart from each other: 

HRA (Health Reimbursement Account)

• Can be used by employees if the employer offers it. 
• Is funded only by the employer.
• Can be used to pay for insurance premiums.
• If an employee leaves their employer, they will lose the HRA benefit. 

HSA (Health Savings Account)

• Can only be used by an employee if they also have a high-deductible health plan (HDHP) to pay for medical and dental expenses.
• Is funded by the employee, but the employer can also make contributions.
• Cannot be used to pay for insurance premiums. 
• If an employee leaves their employer, the employee gets to keep their HSA.

I am an employee and have not made any reimbursements. Can I cash out unused HRA funds? 

No, you are not allowed to cash out unused funds for HRA. Your employer will decide how much of the unused funds can be rolled over to the following year.