Learn what a Health Reimbursement Account (HRA) is and get a high-level overview of everything you need to know to understand how this account type works.
Start your educational journey into this pre-tax account by expanding the questions in the left column you’d like to learn more about. Additional educational resources related to this section topic are available to the right.
A Health Reimbursement Account, also known as a Health Reimbursement Arrangement, is an IRS-approved account governed by Internal Revenue Code Section 105(h) that helps employees pay for certain medical expenses not covered by any other source. HRAs can be designed by an employer to fit various needs and program designs. Most HRAs must be ‘Integrated’ or offered in conjunction with a comprehensive group health plan.
HRAs are owned by the employer. Employers set many of the rules governing the plan, including:
Typically, HRA funds can be used by the account holder, their spouse, or eligible dependents. However, the plan sponsor may be able to restrict its use.
HRAs are funded entirely through employer contributions. Employers choose what contributions are made and at what frequency.
Unlike an FSA or HSA, an HRA is owned and funded by the employer. HRAs can vary dramatically from one another based on their plan design regarding rollover, portability, eligible expenses, insurance requirements, and plan deadlines. An HRA VEBA is still owned by the employer but held in trust on behalf of the individual.
This section focuses on helping you understand the intricacies of submitting claims, providing proper documentation, and ensuring compliance with the substantiation process. Additional educational resources related to this section topic are available to the right.
An HRA claim is submitted by a participant to a third-party administrator asking to be reimbursed for the cost of an eligible expense they incurred. By submitting the product or service information along with an itemized receipt or EOB, the participant can be paid back from their HRA balance, allowing them to use their HRA funds even when they don’t purchase with their Benefits Card.
Receipts may need to be provided to the third-party benefits administrator for proof of substantiation.
The Internal Revenue Service (IRS) requires all HRA and FSA expenses to be substantiated or verified as eligible products or services under Section 213(d). When expenses cannot be verified through automated means, the participant must provide the receipt/supporting documentation that identifies the expense, who the service is for, the amount, and the dates of service.
A standard credit card receipt doesn’t typically provide the details required to verify the expense; a TPA generally needs an itemized receipt or Explanation of Benefits (EOB).
Requests for substantiation are more likely to happen if a participant visits a health care provider that provides some cosmetic services not eligible under a pre-tax health account, a dental or vision care provider, or a pharmacy or retailer that doesn’t utilize an inventory management system.
Per IRS guidance, cards are supposed to be suspended timely to limit further unsubstantiated spending. They are taxable when other efforts have been exhausted, such as repayment or submitting a substitute claim.
Are you an employer or broker trying to design an HRA plan? In this section, we focus on answering questions you may have about customizing your plan. Additional educational resources related to this section topic are available to the right.
There are multiple plan year options to consider for an HRA. The Plan Sponsor will set the rules:
Since HRAs are generally tied to the employer sponsoring the plan, they are only sometimes considered portable benefits. However, certain HRA types can still be used after employment. An HRA Voluntary Employee Benefits Account (HRA VEBA) is held in trust for the benefit of the individual and typically is available upon termination. A Retiree HRA may also be available for eligible retirement expenses. The plan sponsor will define the specific rules.
Yes – While an HRA can cover all Section 213(d) eligible medical expenses, the plan sponsor can further restrict the expenses and rules for using HRA funds. Examples of areas that can be limited or restricted include the following:
Generally, an HRA must be designed to be integrated with a group health plan, and the group health plan must comply with the ACA’s market reform rules. This includes the requirement that the group health plan with which the HRA is integrated provides minimum essential coverage that is considered affordable and provides minimum value. Related to this, HRAs:
Additionally, the HRA is structured to work in conjunction with a High-Deductible Health Plan (HDHP). In that case, specific rules must be followed to ensure the HRA is compatible with employees’ ability to contribute to Health Savings Accounts (HSAs). See the next question for more information.
Yes. The two most common ways to design an HRA compatible with other health plans are:
The plan sponsor generally sets contribution limits. However, certain types of HRAs have contribution limits set by the IRS each year. These include:
Note that the IRS imposes no specific annual contribution limit for Individual Coverage HRA (ICHRA) plans. However, the affordability rules and minimum value requirements for coverage purchased with an ICHRA must be met.
If you’re looking to offer an HRA but don’t want to stick with a standard ‘General HRA’ plan design, you might be wondering what options are out there. This section focuses on covering key characteristics of popular HRA variations. Additional educational resources related to this section topic are available to the right.
An HRA Voluntary Employee Benefit Account (VEBA) combines the features of an HRA with the VEBA structure, a tax-exempt trust established to provide employee benefits. Other essential items of note include the following:
A Limited HRA, similar to a Limited FSA, covers dental and vision expenses exclusively. Funds can be rolled over year to year if the plan is designed to allow for this.
A Limited HRA can also be designed as a Limited Post-Deductible HRA. It exclusively covers dental and vision expenses until the out-of-pocket deductible threshold is met. Since this plan type is designed around the yearly deductible, funds are forfeited, there are annual contribution limits, and the out-of-pocket threshold for deductible expenses must be in line with annual contribution limits.
In a Post-Deductible HRA, expenses are only reimbursed once an out-of-pocket deductible threshold is met. This threshold must align with the plan year; if funds are not used within the plan year, they are typically forfeited. If a Post-Deductible HRA is being offered as an HSA-compatible plan, it must meet the minimum statutory deductible limits set by the IRS for the HSA.
A Restricted HRA is designed to cover only certain expenses. A Limited HRA is one example of an HRA that is restricted to certain expenses (i.e., Dental and Vision), but they can be created and designed by the employer to cover other expenses that might not be covered by the group health plan (i.e., RX only).
In the plan design process, employers can decide if they want to set an out-of-pocket threshold to meet before the HRA reimburses (or, for example, a percentage of each eligible RX expense to be reimbursed) and whether or not they want to allow funds to roll over from year to year.
An EBHRA is a unique type of HRA that qualifies as an “excepted benefit,” which means it is not subject to the PHSA mandates set by the Affordable Care Act (ACA). Other key characteristics include:
An ICHRA is a type of stand-alone HRA that employers have been able to offer since January 2020. It doesn’t require integration with a group health plan. Instead, individuals must purchase an insurance plan either privately, through an exchange, or through Medicare coverage. Other key characteristics include the following:
Check out our other New to Benefits Education Series topics.
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