Employees who have access to HRAs often have a lot of questions about their benefit accounts regarding funding, eligible expenses, and more. Here’s a list of Health Reimbursement Arrangement FAQs.
A Health Reimbursement Arrangement (HRA) helps employees pay for out-of-pocket medical expenses for themselves and their families. Unlike Flexible Spending Accounts (FSAs), though, HRAs are funded exclusively by the sponsoring employer. Funding amounts are unique to each employer, as are eligible expenses. Below are answers to common questions about these tax-advantaged accounts.
Health Reimbursement Arrangement FAQs
What is a Health Reimbursement Arrangement?
An HRA is an employer-owned and -funded benefit account. The account funds are used by plan participants and their dependents for eligible healthcare expenses.
Is my HRA health insurance?
No. HRAs are not health insurance, but they are usually paired with an employer’s health insurance plan. In addition, you cannot use funds from a standard HRA to pay for health insurance premiums.
Who contributes to an HRA?
By law, HRAs are funded only by the employer. Employees are not permitted to contribute. In addition, HRA funds do not count towards an employee’s gross income.
Who receives the tax deduction benefit from an HRA?
Since the employer funds the HRA, the employer receives the tax benefits. However, HRA funds do not count towards an employee’s income and employees are not taxed on the benefit amount.
What are the HRA annual contribution limits?
Unlike FSAs and HSAs, there are no IRS-imposed annual limits on how much an employer can contribute to a standard HRA. The amount available each year is determined by the employer.
When is my HRA funded?
An HRA may be funded annually, semi-annually, quarterly, monthly, some other time period, or even by claim. This is an employer decision in consultation with their benefit advisor or plan administrator.
What is an HRA eligible expense?
HRA-eligible expenses are determined by plan parameters, however they must comply with the IRS regulations regarding eligible healthcare expenses. Expenses that are commonly reimbursed by an HRA include copays, deductibles, and prescriptions.
Which expenses cannot be covered by an HRA?
IRS Publication 502 describes the expenses that are not eligible for reimbursement from tax-advantaged benefit accounts. Among others, these include:
• Babysitting, childcare, and nursing services for a normal, healthy baby
• Contributions to other tax-advantaged accounts (e.g. FSA, HSA)
• Controlled substances that are illegal under federal law
• Cosmetic surgeries and procedures not related to illness/disease or impairment of normal bodily function (i.e., teeth whitening, hair removal or transplants, elective breast enlargement)
• Dancing lessons
• Diaper services
• Future medical care
• Health club dues
• Health coverage tax credit
• Household help
• Illegal operations and treatments
• Insurance premiums
• Maternity clothes
• Medicines and drugs from another country
• Nonprescription drugs and medicines (Over-the-counter)
• Nutritional supplements
• Personal use items (i.e., toothbrush)
• Premium tax credits
• Swimming lessons
• Veterinary fees
• Weight-loss programs
What is a Summary Plan Description?
The Summary Plan Description (SPD) is a document that the sponsoring employer is required to issue which outlines all plan terms and conditions for participants and beneficiaries. The SPD provides details on:
• Plan year dates
• Description of benefits/eligible expenses
• Funding amount
• Participant eligibility
• Claims procedures
• COBRA, HIPAA, and other federal mandates
• Plan and participant termination
• Circumstances that would cause a loss of benefits
If I have an HRA, can I also get reimbursed from an FSA or HSA?
You can have an HRA at the same time as an FSA or HSA, but you cannot claim the same expense in order to get reimbursed from multiple accounts. In other words, you cannot get reimbursed more than once for the same expense; there is no “double dipping.”
There are some situations that may allow reimbursement from multiple accounts, though not for the same total expense. For example, perhaps you have only $200 left in your HRA account, but you incur a $500 eligible expense; after receiving reimbursement for $200 from your HRA, you can receive reimbursement for the remaining $300 from your FSA since that portion of the total amount had not yet been reimbursed.
If you have an HRA and FSA (or HSA), your SPD will outline which account pays first.
Can my HRA link to a debit card?
Some HRAs can be linked to a benefits debit card. Again, the SPD will outline whether or not your plan offers a card.
Do HRA funds rollover?
Some plans may allow HRA rollover at the end of the plan year. Refer to the SPD to learn if your plan is one of them.
If I leave the company, can I keep the funds?
Since HRAs are employer-owned, employees cannot keep any funds remaining in their account when they leave employment (whether termination is voluntary or involuntary). However, some employers offer retirement HRAs or other provisions that allow use of the funds for a certain time period after termination. This will be outlined in the plan SPD.