Haris Ashley
A Health Reimbursement Arrangement (HRA) is an employer-funded plan that reimburses employees for qualified medical expenses and, in some cases, insurance premiums. It is a type of account-based health plan that allows employers to reimburse employees for their medical care expenses, including health insurance coverage or repayment of medical expenses that would otherwise be uncovered. Employees with an HRA can use pretax dollars to purchase individual health insurance coverage but cannot use these pre-tax payments to pay for Marketplace coverage. HRAs are different from Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA).
| Characteristics | Values |
|---|---|
| Type of Payment | Health Reimbursement Arrangement (HRA) |
| Payment Owner | Employer |
| Payment Funder | Employer |
| Payment Recipient | Employee |
| Payment Purpose | Reimbursement for medical, dental, vision, and insurance expenses |
| Payment Tax Status | Non-taxed for employees, tax-deductible for employers |
| Payment Flexibility | Employers decide the list of covered expenses and access methods |
| Payment Portability | Not portable, employees lose benefits when they leave the company |
| Payment Rollover | Employers may allow unused funds to roll over from year to year |
| Payment Limits | Maximum dollar amount per year, with yearly limits set by the IRS |
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What You'll Learn
Employers fund HRAs, not employees
A Health Reimbursement Arrangement (HRA) is an employer-funded plan that reimburses employees for qualified medical expenses and, in some cases, insurance premiums. It is not an insurance payment but a reimbursement for a payment that an employee has already made. Employers can claim a tax deduction for these reimbursements, and the reimbursement dollars received by employees are generally tax-free.
There are several types of HRAs, including:
- Qualified Small Employer Health Reimbursement Arrangement (QSEHRA): This is a health coverage subsidy plan for employees working for businesses that employ fewer than 50 full-time workers. For 2024, a company with a QSEHRA can reimburse individual employees for up to $6,150 per year and employees with families for up to $12,450 per year.
- Individual Coverage HRA (ICHRA): This is a newer type of HRA that allows employers to offer employees an HRA instead of group health insurance. Employees can use these pretax dollars to buy their own comprehensive individual health insurance.
- Excepted Benefit HRA (EBHRA): This type of HRA reimburses employees for up to $1,950 a year in qualified medical expenses. Employees can enrol in an EBHRA even if they decline group health insurance coverage, but they cannot use the funds to buy comprehensive health insurance.
- Retiree-Only HRA: This type of HRA is designed to provide benefits to former employees/retirees. There is no federal annual reimbursement limit, so employers can set this limit as desired.
The amount contributed to an HRA is decided by the employer, and employees can request reimbursement for actual medical expenses incurred up to that amount. All employees in the same class must receive the same HRA contribution. HRAs are not portable, so employees lose this benefit when they leave the company.
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HRAs reimburse employees for medical, dental, and vision expenses
A Health Reimbursement Arrangement (HRA) is an employer-funded plan that reimburses employees for qualified out-of-pocket medical, dental, and vision expenses. It is a way for employers to provide health coverage to their employees without offering a traditional group health plan.
There are a few different types of HRAs, including the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) and the Individual Coverage HRA (ICHRA). A QSEHRA is a health coverage subsidy plan for employees working for small businesses with fewer than 50 full-time workers. It can be used to offset health insurance coverage or repay medical, dental, and vision expenses that would otherwise be uncovered. On the other hand, an ICHRA allows employees to buy their own comprehensive individual health insurance with pre-tax dollars and can also be used to reimburse employees for qualified health expenses such as copayments and deductibles.
Employees can use the money in their HRAs to cover their own medical, dental, and vision expenses, as well as those of their spouses and dependents. It's important to note that HRAs only cover qualified medical and dental expenses, and employers may exclude certain expenses even if the IRS qualifies them. For example, maternity clothes, swimming lessons, and childcare are typically not covered by an HRA.
The IRS has issued guidelines for what constitutes a qualified medical expense, stating that it is a cost incurred to alleviate or prevent a physical or mental ailment, rather than a cost to maintain general health, such as vitamins. Additionally, at-home COVID-19 tests and personal protective equipment, such as face masks and hand sanitizer, have been classified as eligible medical expenses that can be reimbursed under HRAs.
In summary, HRAs are a way for employers to reimburse employees for medical, dental, and vision expenses, providing health coverage outside of the traditional group health insurance plans. Employees can use their HRA funds to cover a range of qualified out-of-pocket healthcare costs for themselves and their families.
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Employees can't contribute to their HRA
A Health Reimbursement Arrangement (HRA) is a health coverage subsidy plan that reimburses employees for qualified out-of-pocket medical expenses, including insurance premiums, vision and dental insurance premiums, copayments, and deductibles. It is important to note that HRAs are not insurance plans but rather a means to reimburse employees for specific medical expenses.
While employees benefit from the reimbursements provided by HRAs, they are not allowed to contribute to their HRA. HRAs are solely funded by employer contributions or mandatory employee contributions. This means that employers determine the amount contributed to each employee's HRA and are responsible for funding these accounts. Employees cannot voluntarily add to their HRA, either through pre-tax or post-tax contributions. This is a key distinction between HRAs and other types of health savings accounts, such as Flexible Spending Accounts (FSAs), where employees can choose to contribute their own funds.
The reason for this restriction on employee contributions is to maintain the tax advantages associated with HRAs. Reimbursements received by employees through HRAs are generally tax-free, and employers can claim a tax deduction for these reimbursements. By prohibiting employee contributions, the IRS ensures that HRA funds remain non-taxable for employees.
It is worth noting that there are different types of HRAs, such as the Qualified Small Employer HRA (QSEHRA) and the Individual Coverage HRA (ICHRA). The QSEHRA is designed for small businesses with fewer than 50 full-time employees, while the ICHRA allows employees to purchase individual health insurance plans with pre-tax dollars. Regardless of the type of HRA, the underlying principle remains the same: employees cannot voluntarily contribute to their HRA accounts.
In summary, while HRAs offer valuable reimbursement for medical expenses, the ability to contribute funds to these accounts rests solely with the employer. This distinction is essential for maintaining the tax benefits associated with HRAs and ensuring compliance with IRS regulations.
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Employers set the rules and contribution amounts for HRAs
A health reimbursement arrangement (HRA) is an employer-funded plan that reimburses employees for qualified medical expenses and, in some cases, insurance premiums. Employers decide how much they will contribute to the plan, and employees can request reimbursement for actual medical expenses incurred up to that amount.
There are a few types of HRAs, including:
- Individual Coverage HRA (ICHRA): This is a relatively new type of HRA that allows employers to offer their employees an alternative to group health insurance. Employees can use these HRAs to buy their own comprehensive individual health insurance with pretax dollars on or off the Affordable Care Act's marketplace.
- Qualified Small Employer HRA (QSEHRA): This is a health coverage subsidy plan for employees working for small businesses that employ fewer than 50 full-time workers. A QSEHRA can be used to offset health insurance coverage or repay medical expenses that would otherwise be uncovered.
For both types of HRAs, employers set the contribution amounts and determine which expenses can be reimbursed for employees. Employers have the flexibility to decide how much they contribute toward their employees' HRAs for each 12-month plan year, with no annual minimum or maximum contribution requirements.
It's important to note that HRAs must be offered equally and fairly to all employees, but the way QSEHRA and ICHRA approach this differs. While QSEHRA eligibility can only be scaled based on family size or age, ICHRA offers more flexibility with its class feature, allowing employers to divide employees into custom classes with varying rates of reimbursement.
In summary, employers play a crucial role in setting the rules and contribution amounts for HRAs, ensuring that employees are provided with a valuable benefit to cover their medical and, in some cases, insurance expenses.
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HRAs are different from Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA)
A Health Reimbursement Arrangement (HRA) is an employer-funded plan that reimburses employees for qualified out-of-pocket medical expenses and, in some cases, insurance premiums. HRAs are not portable, meaning employees lose this benefit when they leave the company.
Health Savings Accounts (HSAs) are owned and controlled by individuals, and the funds in the account can be rolled over each year. The money in an HSA can be used to pay for a variety of medical costs, such as copays, medical bills, prescriptions, and other qualifying health care costs. Additionally, the funds in an HSA grow tax-free over time. Anyone can contribute to an HSA, including family members, friends, and employers. HSAs require an HSA-qualified health plan, such as a high-deductible health plan, in order to contribute.
Flexible Spending Accounts (FSAs) are owned by employers and are less flexible than HSAs. Employees can use the funds in an FSA to pay for eligible medical expenses on a pre-tax basis. However, FSAs follow a “use-it-or-lose-it” rule, meaning that any unused funds at the end of the year may be forfeited back to the employer. While employers primarily fund FSAs, they can also chip in to their employees' HSAs.
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Frequently asked questions
HRA stands for Health Reimbursement Arrangement or Account. It is a plan set up by an employer to cover an employee's medical expenses.
An employer funds an HRA and sets the rules and contribution amount. Employees can then use the funds to pay for eligible medical expenses, as determined by the IRS and the employer.
HRAs can cover medical, dental, and vision expenses. Depending on the type of HRA, funds may also be used to reimburse health, vision, and dental insurance premiums.
You can enrol in an HRA during your company's open enrolment period. You can also sign up when you first join a company or if you experience a qualifying life event.
