Health Reimbursement Account (HRA)
An HRA Health Reimbursement Account is an employer-funded and employer-owned group benefit for employees to use, tax free, for qualified medical expenses. An employer provides a fixed dollar amount per year available for use on qualified expenses, but employers may offer year-end rollover options.
Here are answers to the most frequently-asked questions regarding HRA Health Reimbursement Accounts.
What Is an Employer Funded Health Reimbursement Account (HRA)?
An employer-funded Health Reimbursement Account (HRA) is a health spending account that is provided to employees of the company. The employer determines maximum yearly amounts and rollover availability. Depending on the policies set up by the employer, the funds in the HRA may pay for eligible medical expenses, such as medical, dental, vision, and pharmacy.
What Is a Health Reimbursement Account (HRA-Based) Medical Plan?
A Health Reimbursement Account (HRA-Based) Medical Plan is another name for an HRA account, as is the term Health Reimbursement Arrangement. HRA plans are not health insurance, but a way for an employer to pay for their employees’ qualified medical expenses.
Other important details regarding an HRA-Based Medical plan include:
- A self-employed person cannot set up their own HRA account.
- The employer-provided funds aren’t subject to income tax, social security, or medicare tax.
- An employee is not allowed to contribute funds to the account.
- An HRA plan has no cash value.
- The employer may allow unused funds to roll over into the next year.
- If the employer grants the employee any unused funds at the end of a tax year, those funds count as ordinary taxable income.
- The HRA account can also cover medical expenses for the employee’s spouse or dependents.
How Does an HRA Work?
When you join a company, you’ll be informed about any HRA plan benefits and you will be given the option to enroll.
An HRA is not health insurance, but it is a beneficial way to allow employees to pay for a wide range of medical expenses, including those that may not be covered by a typical health insurance plan. An employer decides what medical expenses are covered under the HRA plan (medical, dental, pharmacy, vision, etc.).
Depending on your employer’s HRA plan, qualified expenses can be paid:
- Immediately, via a credit or debit card that is linked to your account
- As a reimbursement after the employee has paid out of pocket and has submitted eligible receipts
Since the HRA plan is employer owned, employees do not take any funds with them should they leave the company.
However, some employers may allow employees to have access to their HRA after retirement.
What Is the Difference Between an HRA and an HSA Insurance Plan?
The difference between an HRA and an HSA insurance plan is that the employer owns and funds an HRA insurance plan and the employee owns a tax-advantaged HSA insurance plan. This means if an employee with an HRA plan leaves their employer, any remaining amount in the HRA defaults to the employer. However, employees take an HSA insurance plan along with them when changing employers.
What Are the Advantages of HRA Plans?
When it comes to advantages of HRA plans, there are plenty for both employers and employees.
Advantages for Employers:
- Allows employers to maintain control over HRA plan design and fund rollover options
- Is easily integrated with an FSA (Flexible Spending Account)
- Can be used as an employee retention tool
- Offers tax-favored benefit
Advantages for Employees:
- Allows for asset accumulation
- Does not require an HDHP (High Deductible Health Plan)
- Is 100% employer funded
- Funds are available immediately
Can an HRA Be Used to Pay Health Insurance Premiums?
Yes, since the federal government gives employers wide latitude for determining the amount and type of medical expenses that can be covered, employer-funded HRA plans can be used to pay health insurance premiums and long-term care insurance, should employers allow it.