A Health Reimbursement Arrangements (HRA) is an agreement between employee and employer about a predetermined allowance that may be eligible for qualified medical expenses. Only employers can put money into an HRA. Therefore, you, as an employee, cannot contribute. You sign up for an HRA through your employer during the open enrollment period.
What is an HRA?
An HRA, as mentioned above, is a Health Reimbursement Arrangement, often referred to also as a Health Reimbursement Account. The Department of Health and Human Services (HHS) defines an HRA as “an employer-funded group health plan from which employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount per year.” Unused amounts roll over for use in subsequent years. The employer financially contributes to the arrangement. HRA allowances can usually be used for medical services such as:
- Insurance Premiums
*Your employer will determine which health care expenses are eligible under your HRA; therefore, it is essential to always check with your plan about coverage.
An HRA is not like a Health Savings Account (HSA) or Flexible Spending Account (FSA), nor is it even an account. Instead, it is an arrangement between an employer and employees with a predetermined allowance for medical expenses. HRAs are employer-owned and tax-advantaged, meaning that the account is exempt from taxation.
HRA coverage occurs retroactively, so you are reimbursed for a qualified medical expense by your employer. Your employer decides how much it will put into the plan, and you as an employee can request reimbursement for actual medical expenses incurred up to that predetermined amount. HRAs can go hand in hand with any health plan but are often paired with a High Deductible Health Plan (HDHP).
Three main HRA designs are chosen based on the company size, the employer's desired allowance amount, and the existing health benefits offered. HRAs can be offered to some or all employees based on job location, role, weekly hours worked, or participation in the company’s current group health insurance policy. Consider the following table regarding the three types of reimbursement arrangements:
The Three Types of HRAs
Typically Used For Employers Who
Individual Coverage HRA (ICHRA)
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
Excepted Benefit HRAs (EBHRA)
Additionally, your employer decides how your HRA works: either you pay first, or your company pays first. If your HRA pays first, you will use the funds put forward by your employer until they are gone, then be responsible for any expenses your plan does not cover.
Suppose the HRA is set up to where you pay first; in that case, you will pay for expenses not covered by your plan until you reach the predetermined amount set by your employer, and then the HRA will cover costs. The American Benefits Group gives several examples of HRA payment plan designs here.
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Signing Up For and Using an HRA
You sign up for an HRA through your employer during the open enrollment period. Your employer will tell you which type of HRA is available and how much they plan to contribute to it. Most companies will use HRA administration software, such as PeopleKeep, to streamline medical expense reimbursement through a website or mobile app. However, some companies will choose a self-administration option, where they directly manage the HRA health benefit without software or third party.
It is recommended to hold onto receipts, Explanation of Benefits (EOB), medical diagnosis/physician diagnosis letters, and prescriptions until you have received confirmation or denial of reimbursement. It is essential to have these details available when submitting proof of medical expenses:
- The name of the item or service
- The cost of the item or service
- The name of the vendor
- The date of purchase
After opting in during open enrollment or after having a qualifying life event (QLE), you will receive information on how your company plans to monitor your HRA. Through their chosen site you will be able to browse through qualifying medical expenses. You will also submit all documentation through this respective website to receive the reimbursement after receiving the medical service or tool. The IRS lists out qualified medical expenses that HRAs should cover here. Still, your employer has the option to make that list narrower. This is why verifying your medical expense reimbursement capability with your employer is crucial.
Alternatives to an HRA
Unfortunately, HRAs do not work directly with healthcare subscription companies such as Mira, Cerebral, K Health, etc., as they are funded directly by an employer. However, they can work alongside these healthcare subscription models to save you money on high-quality, affordable health care.
If you have an HDHP, Mira can help pay for your medical expenses before you reach your deductible amount. Mira can be a good fit when your HSA and FSA are not enough to cover your medical expenses. It is also an excellent alternative to these accounts altogether and as an employer, Mira is considered an expense and could be tax-deductible.
HRA Frequently Asked Questions (FAQs)
Consider this additional information when it comes to HRAs and setting them up.
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What is the Difference Between an HRA and an FSA?
Unlike an HRA, an FSA is an account owned by the individual employee and can be carried over to different employers should that be the case. Both employees and employers contribute to the FSA account. FSA allows for employees to put a portion of their income aside to later use for qualified medical expenses. The main perk of an FSA is that the funds contributed are not subject to income and payroll taxes. Both employees and employers can contribute to an FSA.
Why Do Employers Use HRAs in the First Place?
There are several advantages HRAs offer to employers. The company’s HRA is tax-deductible, has a high potential for savings if HRA funds are greater than what is actually used by employees, and the employer retains ownership of funds if an employee leaves or is terminated. For additional benefits of HRAs for employers, see this American Benefits Group posting.
Can I Transfer My HRA If I Switch Jobs or am Self-Employed?
No. HRAs are only available through your respective employer. Therefore, if you quit or are terminated, you will lose access to your HRA funds. Additionally, you are not eligible for an HRA if you are self-employed.
There are many benefits to using an HRA for both employees and employers. These include the fact that HRAs are available to all employers, tax-advantaged, and allow for more employee autonomy when it comes to paying for medical expenses. HRAs are only available through an employer who solely makes contributions.
In addition to HRAs and more traditional health insurance plans, you can cover your employees with health insurance alternatives such as Mira. As an employer, you can protect your employees with Mira for only $25 per month per employee. Mira members can access low-cost preventive care, urgent care, lab tests, and prescriptions. Sign up today to start saving!
Kendra Bean is from Maui, Hawaiʻi. She is currently enrolled at the University of Hawaiʻi at Mānoa, specializing in Epidemiology. She is passionate about improving health literacy and access to care, specifically in rural areas.