WHAT IS HRA: How It Works, Plan & Difference

What is HRA
Photo Credit : Optum

A health reimbursement arrangement (HRA) is a health plan or account in which the employer reimburses staff members for certain medical costs and, occasionally, insurance premiums. Reimbursement payments made through these plans are tax deductible for employers, and employee reimbursement funds are typically tax-free.

Your employer plans to reimburse you for HRA expenses up to a predetermined amount when you purchase medical services, including occasionally an individual health plan. Let us find out more about HRA:

What Is Hra

Employees may receive reimbursement from the HRA plan for some medical costs and occasionally insurance premiums. Employers finance HRAs rather than employees. Employees who leave the company forfeit their right to an HRA because it is not transferable. Which expenses employers can reimburse for depends on governmental regulations, which employers may further hone. Depending on the HRA plan, you can use the money to pay for qualified medical expenses as well as the premiums for vision, dental, and health insurance. 

Employer contributions provide the only funding for HRAs. It is an agreement between the employee and the employer for reimbursement. Employees cannot invest the balance employees, nor does it accrue interest.

Employers cannot take payments out of your paycheck if you take part in an HRA. Instead, your employer determines the amount it is willing to pay in monthly or yearly reimbursements for your medical expenses. If you still have money left over at the end of the year, it might carry over to the following year if your employer keeps providing the HRA and you keep using it, but your employer also has the option to decide whether it should or shouldn’t. 

How Does a Hra Work

An employer may create a plan called a “health reimbursement arrangement” to pay for the employee’s medical costs. The employer determines the amount he will contribute to the plan, and up to that amount, the employee may apply for reimbursement of their legitimate medical expenses. The HRA contribution must be the same for all workers in the same class. An HRA isn’t a type of account. As a result, employees are unable to withdraw money in advance and use it to pay for medical expenses down the road. Instead, they must pay for the expense up front and then request reimbursement. 

If the employer provides an HRA debit card, then employees can make payment at the time of service. Employees can use these HRAs to buy comprehensive health insurance on or off the Health Insurance Marketplace and save money on taxes. Individual coverage Copayments and deductibles are examples of qualified healthcare costs that HRAs can cover for workers. The amount of the employer’s contribution to each employee’s coverage HRAs is up to the employer, but all members of the same class of employees must receive the same sum.

The employer also determines the medical costs that the HRA will cover. Most employers set up HRAs for their staff to cover costs not typically covered by health insurance, such as coinsurance after making deductibles as well as out-of-pocket expenses for prescription drugs and medical care that they may incur. Unused HRA funds may roll over from year to year depending on how your employer has the plan set up. But it’s not necessary to do this. If you quit your job and still have money in your account, your employer is free to keep it.

How Do I Enroll in HRA? 

If your employer offers an HRA, you can sign up for it during the open enrollment period. In addition to open enrollment, you can enroll when you first start a new job or if a qualifying life event occurs. The employer decides both the rules and the amount. You cannot fund your HRA with contributions. Contact your employer to find out if you are eligible for this account and to find out more information.

What Is HRA Account

To allow you to pay for specific medical, dental, or vision expenses on your own, your employer contributes to the account. An HRA can help you maximize the use of your healthcare dollars for eligible medical costs and over-the-counter medications as an account-based health plan.

What Is Hra vs Hsa

Health savings accounts (HSAs) are fully vested tax-advantaged accounts that are not subject to forfeiture if funds are still in the account at the end of the year, in contrast to health reimbursement arrangements (HRAs). To cover medical and dental costs, you use an HSA in conjunction with a high-deductible health plan (HDHP). Either the employee or the employer funds the account and unlike an FSA, you cannot use it to pay for insurance premiums. Unlike HRAs and FSAs, employees can keep their HSAs if they change employers

A health reimbursement arrangement (HRA) is a benefit that allows employers to reimburse employees for certain eligible medical costs and health insurance premiums in tax-free funds.

Only the employer contributes funds to an HRA.In most cases, HRAs have no cash value and are not funded. 

What Are the Benefits of an HRA?

Employees can use HRAs to cover a variety of qualified medical costs, such as insulin, prescription drugs, crutches, birth control pills, meals while receiving treatment at a medical facility, psychological or psychiatric care, drug abuse treatment, travel expenses associated with receiving medical care, and much more. 

Additionally, the aforementioned individual coverage HRA (ICHRA) allows employees to use pretax funds from their HRAs to purchase comprehensive individual health insurance on their own. 

Does a Hra Come Out of Your Paycheck? 

There must be no employee contributions to HRAs; instead, the employer must cover all costs. The employee’s income does not include the employer’s HRA contribution.

How Many Types of Hra Are There? 

#1. Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

This is a program that subsidizes health insurance for people who work for companies with fewer than 50 full-time employees. A QSEHRA, also known as a small business HRA. You can use it to pay for medical expenses that would otherwise go uninsured or to offset the cost of health insurance. For employees, the reimbursement is tax-free, and employers can deduct it from their taxes. 

#2. Individual Coverage HRA (ICHRA)

Since its introduction in January 2020, individual coverage under the HRA (ICHRA) has only recently become a possibility. Previously, Employees cannot use HRAs to pay individual health insurance premiums. Nevertheless, starting in January 2020, the government will permit employers to substitute an individual coverage HRA for group health insurance when providing benefits to their staff. Employees with individual coverage HRAs can also get money back for certain medical costs, like copayments and deductibles. 

#3. Excepted Benefit HRAs (EBHRA)

Companies that continue to offer traditional group health insurance can also offer Excepted Benefit HRAs (EBHRA), which let employees receive reimbursement for up to $1,950 in eligible medical costs each year. Even if they opt out of group health insurance, employees are still eligible to enroll in an “excepted benefit HRA,” but they are not allowed to use the funds to purchase comprehensive health insurance. However, they may use the money to cover qualified medical costs, short-term health insurance premiums, and dental and vision insurance costs. 

What Qualifies for an HRA?

An annual physical, prescription medications, or drug abuse counseling are a few examples of medical and dental costs that employees can use an HRA for. This includes any qualifying medical costs that an employee’s health plan does not already cover as well as any costs that their insurance provider expects them to bear independently. Medical costs, dental care, vision care, and other out-of-pocket expenses are all eligible. 

Do HRA Funds Expire?

The way your employer configures your HRA determines whether or not your funds will carry over into the new year. Some HRAs permit annual rollover. However, the majority of employers opt to start fresh the following year by resetting allowances at the end of the current calendar year.

What Happens to Hra Money When You Quit?

Employer-sponsored group health plans called Health Reimbursement Arrangements (HRAs) allow employees to receive tax-free reimbursement for qualified medical expenses up to a predetermined annual cap. The money in your HRA belongs to your employer when you resign, retire, or are fired because it is funded by your employer. When you leave your job or file claims for expenses you have already incurred, please get in touch with your employer to find out your specific rights to continuing coverage.

Employees can carry over unused funds to later years. The employer owns and funds the agreement.

What Are the Disadvantages of a Hra?

An HRA only pays for eligible medical and dental costs. Expenses for treating or preventing a physical or mental illness are considered medical expenses, according to the Internal Revenue Service (IRS), as opposed to costs for maintaining general health like vitamin purchases.

Even though some medical expenses are tax-deductible according to the IRS, an employer may still exclude them. A company’s HRA plan document for employees will include a list of the medical expenses that are eligible for reimbursement. 

The majority of control over the HRA rests with the employer who creates it. They specify the amount of money put into the plan, whether it can carry over from one year to the next, and the approved uses for the funds. Typically, expenses for non-necessary or unprescribed medications or treatments are not covered. Furthermore, as implied by the name “health reimbursement arrangement,” does not permit cash withdrawals for charges. Only after you incur costs are you reimbursed for them. 


An employer’s strategy to pay for an employee’s medical costs is called a health reimbursement arrangement (HRA). Employees may request reimbursement for eligible medical costs up to the predetermined amount, which is decided by the employer. The reimbursements provided to employees under these plans are typically tax-free, and employers can deduct the reimbursements they make from their taxable income. 

An HRA does not constitute health insurance. As an alternative, your employer provides you with a monthly allowance of tax-free money for medical expenses.

For people and families trying to cover the cost of their health insurance, medical supplies, diagnostic services, and other medical expenses, having a special and tailored benefit like an HRA is a huge help.

What is HRA FAQs

What is HRA ?

An HRA is a tax-favored, employer-funded health benefit that has been approved by the IRS for use in reimbursing employees for out-of-pocket medical costs and, in some cases, health insurance premiums

Do HRA Funds Expire?

The way your employer configures your HRA determines whether or not your funds will carry over into the new year. Some HRAs permit annual rollover. However, the majority of employers opt to start fresh the following year by resetting allowances at the end of the current calendar year.

What Happens to Hra Money When You Quit?

The money in your HRA belongs to your employer when you resign, retire, or are fired because it is funded by your employer

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