Health insurance is an important benefit that can help ensure you and your family’s health and happiness. Even with health insurance, however, you still have out-of-pocket expenses to cover for doctor’s appointments, prescriptions, emergency care and more. To help reimburse qualified healthcare expenses, your employer may offer accounts, like a health reimbursement arrangement (HRA). Read on to learn more about what an HRA is, how it works, how you can use the funds, and some of the benefits and limitations of HRAs.
What is an HRA?
An HRA is a benefit account your employer funds that you can use to help cover healthcare expenses.1 It may also reimburse you for qualified expenses from eligible family members, such as qualifying dependents, spouses, or decedents.
Your employer offers and pays for the plan, and they designate how much money is available to you. If you use all of your available HRA funds during the period of coverage, you may have to pay for additional expenses out of pocket — or use a flexible spending account (FSA) or health savings account (HSA) if you have one.
HRA eligibility and types
If you’re eligible to participate in your employer’s health reimbursement arrangement plan, you’ll have to enroll each year during the open enrollment period. For certain types of HRAs, you may need to be enrolled in a health insurance plan to be eligible.
Individual coverage HRA (ICHRA)
Your employer may offer an ICHRA — a new type of HRA that became available in 2020 — which can be used to help pay for health insurance premiums in addition to other qualified expenses.2 To be eligible for this HRA, you need to be enrolled in an individual health insurance plan.
Qualified small employer HRA (QSEHRA)
If you work for a company that employs fewer than 50 people and doesn’t offer a group health insurance plan, your employer may still be able to offer a QSEHRA to help employees pay for health insurance premiums and other qualified expenses.3 To be eligible for this HRA, you generally need to be enrolled in a health plan that’s considered minimum essential coverage.4
Excepted benefit HRA (EBHRA)
If you’ve opted out of a group health insurance plan from your employer, you may still be eligible for an EBHRA.5 While you can’t use these funds to pay for health insurance premiums, they may be used to pay for vision and dental insurance premiums, short-term health coverage, and other qualified medical expenses.
What can you use your HRA funds toward?
The Internal Revenue Service (IRS) determines what’s considered a qualifying medical expense, but your employer will define what’s eligible for you based on your specific plan.6 Here are some examples of the types of expenses you may be able to get reimbursed with an HRA:
- Some insurance premiums
- Health insurance deductibles, coinsurance, and copays
- Medical, vision, and dental expenses
- Pharmacy expenses
If you want to be reimbursed for any qualified expenses, you or your eligible family members must purchase items or services during your HRA plan’s coverage period.
What are the benefits and limitations of HRAs?
Since your employer funds the HRA, it’s a chance for you to save your money to use toward other expenses, like paying off debt, saving up to buy a house, or starting a family. However, since your employer decides the amount of money and how often they make it available in your HRA, you may be limited in how much it can help you depending on your expenses.
And while many items and expenses are considered qualified medical expenses, the IRS states that these expenses are only those that alleviate or prevent mental or physical illness or disease, not those that simply benefit general health.6 This means certain expenses you may consider to be necessary aren’t covered — like deodorant, toothpaste, shampoo, or vitamins.
How do you access HRA funds?
When you’re ready to use the funds in your HRA, you have a few options. Typically, you can use a special debit card attached to your HRA account that pulls money directly from the available funds. You can also pay providers directly through your online HRA account portal. Or you can pay for expenses using your own money and then submit receipts to your employer for reimbursement. Check with your employer to see which option is available with your plan.
What happens if you don’t use your HRA funds?
Since your employer sets the amount and frequency in which they make funds available in your HRA account, they can also decide what happens if you don’t use the funds within a certain time period. Your employer may allow unused funds to be rolled over to a new coverage period, or you may forfeit them. Check with your employer to see what their rules are.
What happens to your HRA if you leave or lose your job?
In most cases, if you leave or lose your job — or if you retire — your HRA account will be terminated, and you’ll no longer be able to access funds. However, some employers may allow you to spend the remaining funds in your account or offer you COBRA to continue coverage.
How is an HRA different from an FSA or HSA?
Here's how HRAs are different from FSAs and HSAs.
- How they’re funded: HRAs are solely funded by the employer, while FSAs and HSAs can be funded by employees and employers.
- Unused funds: You may forfeit unused funds in HRAs and FSAs if you don’t use them in a certain period of time or if you lose or leave your job. Unused HSA funds remain in your account until you use them, and you can still access them if you leave or lose your job.
- How funds can be used: Depending on the HRA, the funds may be used to pay for insurance premiums, while FSA and HSA funds can’t be applied this way.