New to HRAs

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.

Lesson 1: HRA Basics

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:

  • What is covered
  • The rules for payment conditions
  • If funds rollover from year to year
  • What happens to the funds when an employee leaves and/or retires

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.

Learn more about HRA Basics:

Lesson 2: Claims & Substantiation

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).

  • An itemized receipt must contain the provider name, type of service, service date, and service cost. An itemized receipt for prescription expenses is typically included with a participant’s drug information details. 
  • An EOB is a document from the health insurer letting an individual know that a healthcare provider they went to has filed a health plan claim on their behalf. EOBs typically contain all the required information needed to verify an individual’s expenses. This information can typically be accessed from a health plan login site if a copy is not automatically mailed. Alternatively, an individual can request a detailed statement from their healthcare provider.

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.

Lesson 3: HRA Plan Design Differences

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:

  1. Rollover: Some HRA plans allow funds to roll over from one plan year to the next. Any unused funds from the current plan year can be carried over and used for qualified medical expenses in the following year. Employers can set a maximum limit on the amount that can be rolled over.
  2. Limited Rollover: Instead of a complete rollover or forfeiture, some plans can have a partial rollover option, where some unused funds can be carried over to the next plan year while the rest is forfeited.
  3. Forfeiture: HRA unused funds at the plan year’s end could be set up to be forfeited. Note that a complete forfeiture of HRA funds is discouraged, and there are rules to prevent excessive forfeiture.
  4. Grace Period: Plans could include a grace period after the plan year ends, allowing employees to use their HRA funds from the previous year. This limited period, usually around 2.5 months, will enable employees to continue to use funds for expenses.
  5. Run-out or Cutoff Date: HRA plans can be designed to extend the time employees can submit expenses from the prior year.
  6. Termination or Change of Employment: Plans can be designed to allow for a limited period of time after employment ends, during which the employee can still use their HRA funds.

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:

  • Post-deductible limitations: Post-deductible plans allow something to be reimbursed once the out-of-pocket deductible threshold is met. This threshold could be a set dollar amount in line with yearly contribution limits, based on single or family deductible amounts, or a percentage of each eligible expense cost (sometimes seen with Restricted HRAs designed for RX only).
  • Deductibles only (including or excluding prescriptions, coinsurance, and copay expenses)
  • Dental and vision only (in the case of Limited HRAs)

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:

  • Cannot impose pre-existing condition exclusions, which means that individuals cannot be denied coverage or have benefits limited due to a pre-existing medical condition.
  • Must provide coverage for certain preventive services without cost-sharing, as the ACA requires. This includes services like vaccinations, screenings, and counseling.


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:

  • A Limited HRA which pays for dental and vision or
  • A Post-Deductible HRA only pays expenses once a minimum deductible is met.

The plan sponsor generally sets contribution limits. However, certain types of HRAs have contribution limits set by the IRS each year. These include:

  • Excepted Benefit HRAs
  • Qualified Small Employer HRAs (QSEHRA)

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.

Lesson 4: Common HRA Variations

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:

  • HRA VEBAs are authorized under Internal Revenue Code (IRC) Section 101(c)(9). All medical expenses, as defined by IRC Section 213(d), may be eligible under this plan type.
  • An HRA VEBA enjoys favorable tax treatment. Employer funding is tax-deductible by the employer and remains tax-free for employees’ use on eligible medical expenses. Unused funds stay in accounts and earn interest or are invested. Funds typically carry over from month to month and year to year.
  • When that employee leaves the company or retires, they can typically continue to use the funds. The account is still owned by the employer but held in trust “for the benefit of” the employee.
  • HRA VEBAs are compatible with other pre-tax medical plans such as FSAs. Plans can also be designed to be embedded with a High-Deductible Health Plan (HDHP) or hold health care funds as a Governmental Accounting Standards Board (GASB) 45 prefunding plan.

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:

  • Employees must be offered participation in group health plan but can deny coverage and still get EBHRA funds.
  • An employer can set an out-of-pocket threshold to be met before the HRA reimburses.
  • The plan can be designed to roll over funds from year to year.
  • There is an annual contribution limit for this plan set by the IRS.

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:

  • Employers determine the maximum contribution and if funds roll from year to year.
  • Employers can create classes of employees (i.e., salaried vs. hourly, full-time vs. part-time, geographic region). All employees within a specific class must be offered the account on the same terms.
  • Employees offered another group health plan are not eligible for an ICHRA.

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