What Is an HRA?
So, what is an HRA? In this article, we’ll answer that question and explain how it differs from an HSA.
What is an HRA?
A Health Reimbursement Arrangement (HRA) is a group health plan owned and funded by an employer. Through an HRA, employees can receive tax-free reimbursement for qualified medical expenses up to a dollar amount specified by the employer. Only employers may contribute, and they must contribute the same amount to every employee in the same class.
HRAs are sometimes mistakenly called “Health Reimbursement Accounts,” but that’s not quite true since employees cannot contribute to it and must incur expenses before they can use funds for reimbursement. Some HRAs do provide employees with debit cards, though, so they may be reimbursed at the time of purchase.
Employees are usually required to submit receipts for reimbursement of qualified medical expenses, which can include annual physicals, prescription drugs, and more. Some HRAs—like Qualified Small Employer HRAs and Individual Coverage HRAs—can even be used to cover health insurance premiums. Additionally, employers have some discretion to limit what qualifies as a reimbursable medical expense under their particular plan.
If an employee uses all of their allocated HRA funds before the end of the plan year, they may use a flexible spending account (FSA)—or in limited circumstances—a health savings account (HSA) to cover remaining expenses.
Typically, unused, allocated HRA funds may rollover from one year to the next, but employers have the option to limit the amount. Also, since HRAs are employer-owned, they are not portable—which means individuals cannot take them when they leave employment.
What’s the Difference between an HRA and an HSA?
An HRA may sound similar to the more familiar HSA, but they differ in important ways.
For example, HSAs must be paired with a high-deductible health plan (HDHP), but HRAs have no such requirement. In fact, an HRA may be the employer’s only health plan. Also, HSA funds cannot be used to pay for health insurance premiums.
As mentioned, unused HRA funds usually rollover from year to year, but the rollover amount can be limited by the employer who owns it. HSAs, however, do not have a rollover amount limit.
Finally, HRAs are not portable, but HSAs are owned by the individual, who can use those funds even after they’ve left employment.
Of course, this comparison may lead you to wonder if an employee can have an HRA and an HSA at the same time. Under certain circumstances, yes, but the HRA must be “HSA-qualified.” This means the HRA does not provide coverage below the IRS-mandated deductible level for HSAs—which is $1400 for individual coverage and $2800 for family coverage in 2022.
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