HRA Plans for Beginners | What is an HRA?

As a business owner, you have many responsibilities and a lot on your plate. If you’re thinking about how you can offer health benefits to attract and retain good talent, but adding group health insurance seems daunting, consider a Health Reimbursement Agreement (HRA). Save time and money while supporting your employees' health and well-being with an HRA for small businesses.

HRAs have become popular in recent years, thanks in part to the freedom and control that they offer employers. But what does HRA mean? More specifically, what is an HRA plan? An HRA is a Health Reimbursement Arrangement or a type of health plan that allows employers to reimburse employees for healthcare-related expenses. While traditional group health plans leave little room for customization, HRAs help give some of that power back to employers and employees so that they can work towards solutions on a more individual level.

HRA Plans for Beginners | What is an HRA?

Table of Contents

• HRA for Dummies
  • What does HRA stand for?
• Understanding HRAs
  • What is an HRA?
  • How does health reimbursement arrangement (HRA) coverage work?
  • Is HRA coverage the same thing as HRAs?
• Exploring the Benefits and Drawbacks of HRAs
  • Benefits of HRAs
  • Pros and Cons of an HRA
    • Pros
    • Cons
  • Is an HRA the same as health insurance?
  • Is an HRA a good plan?
• Comprehensive HRA Coverage
  • What expenses can be reimbursed by an HRA?
  • What are the benefits of an HRA for business owners?
• Choosing the Right HRA Plan
  • Which HRA plan is best for your business?
  • Different Types of HRA Plans
    • Qualified small employer HRA (QSEHRA)
      • Benefits of a QSEHRA for small businesses
    • Individual coverage HRA (ICHRA)
      • Benefits of an ICHRA for your small business
    • How do I decide between group coverage and an HRA?
• Deep Dive Into HRA Types
  • Other Types of HRA plans
    • One-Person 105 HRAs
    • Excepted Benefit HRAs
    • Integrated HRAs
    • Traditional HRAs
    • Standalone HRAs
      • Spousal HRA
      • Retiree HRA
      • Medicare HRA
• HRA Comparisons
  • HRA vs HSA
  • HRA vs FSA
  • HRA vs PPO
  • HRA vs HMO
• Administrative Insights
  • Who can offer an HRA?
  • How do you manage an HRA?
  • How to set up an HRA
    • Pick an HRA Type
    • Select a Start Date
    • Design the Plan
    • Draft Legal Documents
    • Educate Employees
    • Assist with Getting Insurance
  • HRA Requirements
  • How to choose an HRA administrator
    • Process, Compliance, and Reporting
    • Employee Communication
    • Employer Support
  • Can an employer administer their own HRA?
• Employee FAQs about HRAs
  • Detailed answers to common questions ranging from tax implications to fund usage
• A Better Way to Offer Employee Health Benefits

What does HRA stand for?

HRA stands for health reimbursement arrangement.

What is an HRA?

Health reimbursement arrangements are tax-advantaged "arrangements" that allow employers to reimburse their employees for health insurance rather than choosing it for them.  

Employees shop for a health plan that works best for their family and then get reimbursed on their paycheck. Employees then pay for their health expenses — including health insurance premiums and out-of-pocket medical costs — and employers reimburse them for one or both, whatever they decide.How do I use an HRA?

Here are a few high level things to remember about HRAs:

• They are tax-free, not subject to income tax, payroll tax, or employer tax
• They allow businesses of all sizes to take away risk and control their budget 
• They help employees pay for their health insurance 
• They can be used to reimburse premiums or medical expenses or both
• There are several types of HRAs (more on that later!)
• They are an arrangement, not an account, so there is no pre-funding
• They work for any budget and any size of company

How does health reimbursement arrangement (HRA) coverage work?

Here’s how an HRA plan works in four simple steps:

1. Employers design their plans and set reimbursement allowances
2. Employees pay for their health insurance and medical bills
3. Employees provide proof of their expenses to your HRA administrator
4. Employers reimburse the employee

An HRA gives employers flexibility and empowers employees to take charge of their health insurance plans.

As a result, your employees can select the health care plan that works best for them without being tied to a one-size-fits-all plan many businesses offer.

Finding affordable and reasonable health insurance plans for yourself and your team can be challenging.

With an HRA, you can remove the headache of traditional business-offered health insurance plans and put the power back into the hands of your team by providing reimbursements for qualified health care expenses.

Is HRA coverage the same thing as HRAs?

HRA Coverage is a model of employer health insurance that is utilized to reimburse employees for their medical expenses. It's also called health reimbursement arrangements, health reimbursement accounts, or HRAs. Employees get reimbursed tax-free up to the maximum amount the employer will repay for health care costs for a set amount of time. Unused amounts may be rolled over to be used in subsequent year. The employer not only funds the HRA but also owns it. 

→ Check out our official guide on HRAs to learn more!

Benefits of HRAs

One of the primary advantages of HRA plans is that employers have greater control over their total benefits spend. By working with HRAs, employers can set limits based on their employees’ needs and what is best for their companies. Here are some additional benefits of HRAs from the employer end:

• The ability to set a budget
• Better control/predictability for rates
• Greater flexibility with plan design
• Tax advantages (HRA accounts aren’t subjected to payroll taxes)
• Only paying for what employees actually want and use
• Freedom from group participation requirements

In addition, HRAs offer numerous advantages to employees, including the following:

• Being able to choose plans that are tailored to their individual needs
• The privilege of keeping their pre-existing health insurance plans
• Tax benefits (i.e., no income tax paid by employees)
• Plan portability, no losing your health insurance if you change jobs or lose your job

As is the case with anything related to health insurance, it’s important that employers also consider the disadvantages of HRAs. While HRAs are a terrific alternative to other group-based health plans, they are not without their downsides. For example, if you’re an employee who’s considering switching companies, you should note that your HRA funds will not transfer with you. From the employer’s perspective, it can be difficult to obtain buy-in from employees if they’re already working with plans they like. Change management is very important to mitigate this. What’s more, some locations are more advantaged than others in terms of the variety, quality and price of individual health insurance plans.

Pros and Cons of an HRA

There are always upsides and downsides when deciding which HRA health reimbursement arrangement is best for your business or client. 

Here are a few pros and cons of HRA accounts.

Pros:

• Employees can use it for medical and dental expenses, prescriptions, annual exams, birth control medications, and more.
• Employees choose providers and plans.
• Some HRA designs (including all of Take Command’s products) allow employees to use their HRA for insurance premiums.
• Unused funds can roll over at the employer's discretion.
• Tax-advantaged funds for medical expenses 
• Some types of HRAs prompt a Special Enrollment Period, meaning it’s easier for employees to sign up for health insurance within 60 days of that change.
• If an employee loses their job or quits, they keep their health insurance.

Cons:

• Funds stay with the employer if an employee leaves the company. Note: this is actually a pro for employers. 
• Employees cannot use it for cosmetic costs such as teeth whitening or other procedures or products deemed unnecessary. Again, most employers would consider this a pro.
• There may be plan-based employer contribution limits depending on what type of HRA is offered
• Provider options may be limited based on the insurance market per geographical region.
• In some cases, employees on spouse’s plans cannot get reimbursed for their spouse’s premiums. 
• For some types of HRAs, the HRA offer can replace premium tax credits that some individuals receive.
• Some HRAs don’t integrate with medical sharing plans or TRICARE, among others.

For a more comprehensive, detailed list of pros and cons, check out our HRA account pros and cons blog.

Is an HRA the same as health insurance? 

Glad you asked!

No, it is not.  

A health reimbursement arrangement is not insurance.  An HRA is an arrangement between an employer and their workers that allows them to reimburse for health care expenses and premiums tax-free. 

→ Here's a handy post on how HRAs work

Is an HRA a good plan? 

Health reimbursement accounts are a superb way to provide equal health benefits and allow their employees to pay for their medical expenses for their individual needs.  

For the employer, it is economically more pleasing than group health insurance. 

For the employee, they get flexibility that would not be an option with a group health plan.  

Ready to learn how much you can reduce benefits cost?

A new way to offer health benefits in the post-pandemic work landscape, companies are balancing a combination of remote workers, contractors, and full—and part-time employees with hybrid schedules.

This new way of work is ushering in a new way of approaching healthcare and managing teams. The Take Command HRA platform provides an easy-to-use dashboard that onboards employees and helps them navigate the system where they can easily shop and compare available individual insurance plans and get set up with just a few clicks.

Employees want and appreciate work flexibility, which transfers to employer benefits.

With HRA plans, each employee selects the best insurance plan for them and controls the coverage level, then submits claims to the HRA administrator for reimbursement.

At the same time, employers can quickly access their company information to manage your plan effectively, all while leaving the heavy lifting (and keeping the IRS satisfied) to us.

HRAs are increasing in popularity because they allow businesses of all sizes to offer an affordable group benefits alternative to their employees.

What expenses can be reimbursed by an HRA?

It’s up to each employer to decide whether they will reimburse premiums only or premiums along with qualified medical expenses.

Some commonly covered medical expenses include:

• Blood glucose monitors
• Blood pressure monitors
• Copays
• Dental care
• Hospital expenses
• Monthly premiums for qualified individual insurance plans
• Over-the-counter medicine
• Payments toward a deductible
• Prescription drugs
• Routine doctor visits
• Vision care, including eyeglasses, contact lenses and exams

→ Read on for the complete list of HRA eligible expenses! 

→ More information on how HRAs work for expenses for spouse, family or dependents 

What are the benefits of an HRA for business owners?

Companies of all sizes can provide more freedom by offering an HRA to all employees who want to participate in the arrangement. Each employee can use the HRA administration platform to shop for an individual insurance plan that makes sense for their health, budget, and family situation.

When you partner with an HRA administrator like Take Command, we’ll make sure your team understands the benefits of the HRA and how they can choose a healthcare plan that suits their needs — giving them complete control over their coverage, network, premium — and get reimbursed for qualified medical expenses such as copays, prescriptions and premiums.

You can rest easy knowing your HRA administrator will ensure compliance and reporting, manage and process claims, handle employee communications and provide employer support.

→ Wondering if a business owner can participate in their own HRA? Check out our post on owner eligibility and HRAs for more intel. 

What are the different types of HRA plans?

Unlike traditional group insurance plans, choosing and offering an HRA to employees is straightforward.

Take Command offers two HRA plans that will fit any budget: Qualified small employer HRA (QSEHRA) and Individual coverage HRA (ICHRA). Here’s what you need to know to determine which HRA plan is best for your business.

Qualified small employer HRA (QSEHRA)

The qualified small employer HRA (QSEHRA) is made for small businesses with fewer than 50 full-time equivalent employees and works for all W-2 employees regardless of their insurance status.

This is an excellent option for a small business ready to make their first health benefit offering or frustrated by limited options with group plans. A QSEHRA can reimburse employees for insurance premiums, out-of-pocket costs, or both.

What are the benefits of a QSEHRA for small businesses?

Implementing a QSEHRA can unlock several significant benefits for a small business or non-profit compared to other options. Here are some of the benefits and reasons why we love them:

• Optimized benefits
• Tax efficiency
• Flexible design
• Freedom from group health plans
• Budget control

Individual coverage HRA (ICHRA)

The individual coverage HRA (ICHRA) works for employers of all sizes and is a great option if you have a remote workforce with different classes of employees in many states. With the individual coverage HRA, you can divide employees into classes (appropriate for a mixed workforce) to provide appropriate benefits and tax-free reimbursements for each employee type.

Employers may offer an ICHRA as a standalone or alternative health benefit to employees who don’t qualify for your current group health insurance plan. An ICHRA can reimburse employees for qualifying individual health insurance premiums, out-of-pocket costs, or both.

What are the benefits of an ICHRA for your small business?

Implementing an ICHRA gives you recruiting power with benefits offered for a multi-class workforce. If you have different types of employees in various locations, an ICHRA is a great choice. Here are some of the benefits and reasons why we love them:

• Personalized plan options
• Tax efficiency
• Simple and flexible design
• No minimum participation requirements
• Budget control

How do I decide between group coverage and an HRA? 

For an employer, deciding between whether to arrange a Health Reimbursement Arrangement or a utilize group insurance can be troublesome.  

Both ICHRAs and QSEHRAs give the employee individual options instead of a set plan they would have to be on with a set carrier. With an HRA, there is a defined contribution or allowance that each employee is reimbursed monthly. The employee pays for their premium, and then on a set date is reimbursed. Employees will have to choose a health plan from the Individual Marketplace for coverage. HRAs also can provide reimbursements for dependents as well.  

With either QSHERA or ICHRA, you have an allowed 60 days to enroll after being offered your HRA or if you have a Qualified Life Event set by the government.  

With Group insurance, you are offered a particular plan or plans that are pre-selected by your employer. This gives little flexibility to the employee should that carrier or plan not provide the care they need. In other words, your employer is paying for the majority of your premium and in hand selects the plan for their company.  

A benefit of group insurance is the employer pays a set amount each month and the rest of the premium is deducted out of your paycheck to cover the remainder.  

With group insurance, you can generally enroll any time of the year. 

→ Compare Group Plans vs HRAs here. 

Other Types of HRA Plans

Health Reimbursement Arrangements (HRAs) are versatile tools for managing healthcare costs. Understanding how HRAs work is crucial for choosing the right option. Each type of HRA serves a specific purpose and suits different needs.

One-Person 105 HRAs

A One-Person 105 HRA is tailored specifically for small businesses with only one employee. This HRA for dummies can be a valuable tool as it allows the employer to reimburse the employee for qualified medical expenses tax-free. This is an ideal solution for sole proprietors who want to understand how do HRA accounts work but are not eligible under traditional group plans.

Excepted Benefit HRAs

The Excepted Benefit HRA is designed to complement non-major medical coverage, such as vision or dental plans. It's useful for employers who wish to provide additional benefits without integrating with a comprehensive health plan. Employees wondering "how does HRA work?" will find this plan straightforward, as it allows for a fixed amount of reimbursement for specified benefits.

Integrated HRAs

Integrated HRAs are meant to work in conjunction with a group health plan. They help cover out-of-pocket costs not paid by the primary health insurance. This is a good option for employers who wish to enhance their health benefits package and provide more substantial what is HRA benefits.

Traditional HRAs

Traditional HRAs are employer-funded health reimbursement plans unrelated to any specific health insurance plan. They offer flexibility because employers can decide what healthcare expenses to reimburse. This plan type is perfect for employers who need flexibility in customizing how do HRAs work for their specific organizational needs.

Standalone HRAs

Standalone HRAs are independent of any other health coverage and can be used to reimburse a wide range of medical expenses. This type is particularly beneficial for employers who do not offer group health insurance but still wish to provide health benefits to their employees.

Spousal HRA

A Spousal HRA reimburses an employee's spouse's medical expenses. This is an excellent benefit for employees whose spouses do not have access to their own employer-sponsored health plans, enhancing the understanding of how HRAs work in a family context.

Retiree HRA

Retiree HRAs are designed for former employees who are no longer working but still need assistance with healthcare expenses. This setup provides a continuation of benefits in retirement, explaining how do HRA accounts work for retirees and ensuring they still receive support for healthcare costs.

Medicare HRA

Medicare HRAs help cover the cost of Medicare premiums and other medical expenses not covered by Medicare. They are an ideal solution for employers who want to tax-efficiently support their retired employees' healthcare needs.

Each type of HRA offers unique benefits and serves different employer and employee needs, making them highly adaptable to various situations. Understanding how each type functions and its benefits is crucial for employers and employees looking to make informed decisions about their healthcare strategies.

HRA vs HSA

HRA and HSA plans are often confused but are not the same. So what is HRA vs HSA? A Health Savings Account HSA is a special purpose bank account, an official way of saying an account that holds money that may only be used for one purpose – In this case, approved health care costs. Employees and employers may both contribute to an HSA within IRS  regulations. Also, there are some tax advantages associated with HSA accounts.

A Health Reimbursement Arrangement is an employer-funded account that works as a holding place for funds available to employees to cover approved medical expenses.

Employees may access the funds by requesting a reimbursement. In addition, employers can restrict the rollover of unused funds each year and choose between plans that offer slightly different reimbursement levels (e.g., premiums only vs. premiums with medical expenses.)

HRA vs FSA

When comparing a Health Reimbursement Arrangement (HRA) to a Flexible Spending Account (FSA), it's important to understand how each account works and its benefits. An HRA is an employer-funded plan that reimburses employees for qualified medical expenses. One of the main advantages of an HRA is that the employer solely funds it, and unused funds can be rolled over to the next year at the employer's discretion. This flexibility is one of the key aspects of what is HRA benefits.

On the other hand, an FSA is funded primarily by the employee through pre-tax salary reductions, with the option for employer contributions. FSAs are "use it or lose it" accounts, typically requiring employees to use all funds within the plan year, with limited carryover options. Understanding how do HRAs work compared to FSAs helps employees see HRAs as potentially more beneficial due to their employer funding and rollover capabilities.

HRA vs PPO

Comparing an HRA with a Preferred Provider Organization (PPO) plan, we focus more on the structure of the health coverage rather than just the funding aspects. A PPO plan is a type of health insurance that offers a network of preferred providers and allows for some out-of-network coverage at a higher cost. Employees have more flexibility in choosing their healthcare providers and do not need a primary care physician's referral to see a specialist.

In contrast, an HRA is not health insurance but a reimbursement plan that can complement a PPO or other types of health plans. An HRA allows employers to reimburse employees for out-of-pocket medical expenses, including deductibles and copayments often associated with PPO plans. Employers looking into how do HRAs work with PPO plans might find that combining both can lead to enhanced health benefits coverage, making comprehensive health care more affordable for employees.

HRA vs HMO

Health Maintenance Organization (HMO) plans are often compared with HRAs due to their structured approach to healthcare management. An HMO typically requires members to choose a primary care physician and obtain referrals to see specialists, emphasizing preventive care and keeping costs within the network.

HRAs, in contrast, offer reimbursement for various health-related expenses and are not limited to specific networks or care structures. This makes HRAs more flexible and appealing in the context of how do HRA accounts work alongside or independently from traditional health insurance plans. For employees and employers figuring out how do HRAs work in conjunction with or as an alternative to HMOs, HRAs provide a way to manage costs without restricting provider choices or care pathways.

These comparisons help highlight how HRAs provide a unique blend of flexibility and employer control, which can be tailored to complement traditional health insurance plans or offer alternative solutions where traditional insurance may not be optimal.

Who can offer an HRA? 

Employers with any number of employees can offer individual coverage HRA. They need to have one employee that is not a self-employed owner or spouse of the self-employed owner. Health Reimbursement Arrangements are ONLY for employees and not self-employed individuals. 

How do you manage an HRA? 

The employer who establishes the HRA has the majority of the control over. They decide on how much money goes into the plan, whether it can accumulate and roll over from one year to the next, and what the HRA funds are allowed to be used for eligible expenses.  

Also engaging in a HRA company like Take Command can help manage and do all the behind the scene tasks for an employer and employee leaving little for them to worry about. 

→ Learn about our HRA administration platform. 

How to Set Up an HRA

Setting up a Health Reimbursement Arrangement (HRA) involves a series of steps that employers must follow to ensure the plan meets legal requirements and serves the employer's and employees' needs. Here’s a detailed look at each step:

Pick an HRA Type

The first step in establishing an HRA is to decide which type of HRA best fits the needs of your business and your employees. This decision will depend on factors such as the size of your company, the benefits you wish to offer, and your budget. The options range from Qualified Small Employer HRAs (QSEHRAs) to Individual Coverage HRAs (ICHRAs), and each has specific rules and benefits. Understanding how each type of HRA works will guide you in choosing the most suitable one.

Select a Start Date

Once you've chosen the type of HRA, the next step is to select a start date for the plan. This date marks when your employees will begin to receive benefits. It's important to consider the timing of other benefits renewals and the administrative readiness to manage the HRA. Typically, aligning the start date with the beginning of the tax year or an insurance policy year can simplify the accounting process.

Design the Plan

Designing the plan involves specifying what expenses will be reimbursed, how much money employees will receive, and any other eligibility requirements. This step is crucial as it defines how the HRA will operate. Decisions made during this phase should align with company objectives and the needs of the employees. Ensuring the plan design complies with all relevant healthcare laws and regulations is also important.

Draft Legal Documents

Drafting legal documents for an HRA is essential as these documents will govern the operation of the HRA and ensure compliance with federal and state laws. The documents should clearly outline the terms of the HRA, including eligibility criteria, benefits provided, claims procedures, and employee rights and responsibilities. Working with a legal expert or a benefits consultant is advisable to ensure that all documentation is thorough and compliant.

Educate Employees

Once the HRA is ready to be implemented, it is vital to educate your employees about how it works. This includes informing them about the benefits, how to submit claims, and where to get help. Effective communication can include group meetings, informational packets, and one-on-one sessions. The more your employees understand the benefits and process, the more likely they will utilize the HRA effectively.

Assist with Getting Insurance

If your HRA is designed to work with individual health insurance (like an ICHRA), assisting employees in obtaining suitable coverage is beneficial. You can provide resources for finding insurance, such as directing employees to the health insurance marketplace or recommending insurance brokers. Offering support in this area can help employees find plans that meet their needs and align well with the HRA benefits.

HRA Requirements

There are two main types of HRA plans that we’ll talk about today, and requirements vary between them. ICHRA can be offered by employers of all sizes, while QSEHRA is only available for employers with fewer than 50 full-time employees. The biggest difference is ICHRA’s ability to scale benefits across employee classes (i.e., one set amount to hourly workers and one set amount to salaried, or based on location, full time vs part time, etc). 

→ Learn more about ICHRA classes 

Also, while employers can offer an ICHRA to one class or type of employees and a group plan to a different type of class of employees. In other words, ICHRA can work alongside a group plan; QSEHRA cannot. In both instances, however, employers can’t offer both ICHRA/QSEHRA and group health insurance to the same classes of employees. QSEHRA doesn’t allow for class options at all, meaning that group plans are off the table. For an employee to receive an ICHRA, they must be enrolled in an individual insurance plan. With QSEHRAs, employees can either get on their own plan or take advantage of the HRA by reimbursing for their spouse’s health insurance premiums.

Understanding some of the basic HRA requirements is critical for employers that are just getting started with these types of accounts, as well as for employees that are trying to navigate the intricacies of healthcare plans. While the HRA setup process is fairly straightforward, becoming familiar with all the ins and outs of the system can take a lot more time. For this reason, it’s important that employers provide their employees with adequate resources for understanding their specific plans and what is and isn’t covered. HRA-eligible expenses typically include prescription drugs and dental and vision services, though these vary somewhat depending on whether the employer chooses to reimburse for medical expenses in addition to health insurance premiums.

Can an Employer Administer Their Own HRA?

While it is technically possible for employers to administer their own Health Reimbursement Arrangement (HRA), doing so involves significant challenges and risks, particularly in compliance with legal requirements and administrative burden. Employers must be fully aware of the complexities of managing an HRA to ensure it aligns with IRS regulations and healthcare laws.

Benefits of Working with a Third-Party Provider for HRA Administration

Opting to work with a third-party provider for HRA administration offers several advantages that can mitigate the risks and burdens associated with self-administration:

• Compliance Expertise: Third-party administrators (TPAs) specialize in staying up-to-date with all applicable regulations, ensuring that your HRA complies with tax laws and health insurance regulations. This expertise is crucial in avoiding costly legal mistakes.
• Efficient Management: TPAs have established systems for processing claims, handling disputes, and managing records. This efficiency helps streamline operations and improves the overall experience for both employers and employees.
• Reduced Administrative Load: Managing an HRA can be time-consuming. A third-party provider takes on these responsibilities, allowing you to focus more on your business operations than administrative tasks.
• Enhanced Employee Experience: Professional HRA administrators often offer better tools and support for employees, making it easier for them to understand and utilize their benefits. This includes user-friendly platforms for submitting claims and accessing information about their coverage.
• Scalability: As your business grows, a third-party administrator can more easily scale your HRA to fit increasing needs and changes without requiring you to proportionally increase your internal resources dedicated to managing the HRA.

Take Command as a Skilled HRA Administrator

Take Command is recognized as a skilled HRA administrator who is well-versed in handling the nuances and complexities of various types of HRAs. Partnering with Take Command can provide peace of mind, knowing your HRA is managed efficiently and compliantly. Their expertise in HRA administration ensures that all aspects, from initial setup and employee education to ongoing management, are handled professionally. This partnership allows employers to reap the benefits of HRAs without the stress of daily management and compliance monitoring, ensuring that both the employer and employees receive the maximum benefit from the arrangement.

Ultimately, while self-administering an HRA is an option, the benefits of working with a third-party administrator like Take Command often outweigh the potential savings of in-house management, especially considering the complexities and possible risks involved.

Employee FAQs about HRAs

Q: What is HRA in health insurance? 

A: An HRA or health reimbursement arrangement is an employer-funded health plan in which the employer reimburses the employee, tax-free, for qualified premiums and medical expenses at a set dollar amount per year.  

For the employees to be reimbursed, they must be enrolled in a health plan through the marketplace.  

Employers are responsible for funding and managing the HRA. 

Q: If I use my employer’s HRA platform to research and buy an individual (or family) insurance plan and then leave the company, will I lose my insurance?

A: No, you keep the insurance – it goes with you wherever you go as long as you want to maintain that plan. Unlike employer-sponsored group health plans that tie you to the company to maintain health insurance, an HRA allows you to shop the marketplace to secure the best health plan for you that your company reimburses you for as long as you’re employed there.

Q: Do I have to use the HRA my employer offers?

A: There are no participation requirements, and if you decide not to use the HRA it won’t affect the plan for your employer. However, if they offer you an affordable HRA, it may counteract your ability to collect premium tax credits. Ask the Take Command team for more help in the chat on the bottom right hand of the screen. 

Q: How do I get money from my HRA account for medical expenses?

A: Since there’s no pre-funding of accounts (like an HSA or FSA) and the HRA is simply an “arrangement” between you and your employer (and not a health reimbursement account), you can’t take funds out. Instead, you’ll submit a receipt for reimbursement for qualified medical expenses, and your employer will pay you back.

The IRS Publication 502 outlines qualified medical expenses. Your employer may reimburse only for health insurance premiums, qualified medical expenses, or both.

Q: Do HRAs earn interest?

No, Health Reimbursement Arrangements (HRAs) do not earn interest. HRAs are employer-funded accounts that reimburse employees for qualified medical expenses incurred throughout the coverage period. The funds contributed by the employer to an HRA are not placed in interest-bearing accounts, nor are they intended to serve as an investment. Instead, these funds are solely for health care expense reimbursement.

This setup ensures that HRAs remain a straightforward benefit solution focused on providing direct support for healthcare costs without the complexities associated with investment returns. An HRA's primary benefit is helping employees cover out-of-pocket medical expenses tax-free rather than acting as a growth asset.

Q: How can I use HRA funds? 

Health reimbursement funds cover medical premiums and eligible expenses set by your employer. These expenses can include dental, vision, prescriptions, and out-of-pocket costs. 

→ Here's a complete list of which medical expenses are reimbursable with an HRA. 

Q: Are HRAs portable? 

A: No, they are not. 

To clarify, if an employee leaves or is terminated, the funds remain with the employer. Some employers do allow their terminated employees to access their HRA funds that were accrued while they were employed.  

Again, this is strictly decided upon by the employer and is contingent upon which HRA is in play.

As an aside, when dealing with ICHRAs and QSEHRAs specifically, while HRAs are not portable, the health insurance plan is. That means an employee doesn't lose his insurance if he loses his job. This is a good thing!

Q: Can I cash out/withdraw funds from my HRA?

A:No, you cannot.  

Unused HRA funds are either rolled over for eligible expenses or retained by your employer. Your employer decides what options they will allow. You cannot withdrawal HRA funds to use for any expense.  

Why? 

Your employer owns the money in the HRA. 

→ Read about what happens to unused HRA account funds here. 

Q: What happens to unused HRA funds?

The handling of unused funds in a Health Reimbursement Arrangement (HRA) depends on the specific rules set by the employer when designing the HRA plan. Typically, employers have two main options for managing unused HRA funds at the end of the plan year:

• Rollover Options: Many HRAs allow unused funds to be rolled over to the next year, allowing employees to use these funds for future medical expenses. This rollover feature is particularly beneficial as it offers continued support for healthcare costs without penalizing employees for having a healthy year. Employers can limit how much money rolls over yearly, ensuring the plan remains financially manageable.
• Forfeiture: In some cases, any unused funds at the end of the year may revert to the employer. This setup can encourage employees to use their allocated funds within the year they are provided, but it can also lead to unnecessary spending at the end of the plan year as employees seek to use up their balances.

Employers designing an HRA should carefully consider which option best aligns with their financial capabilities and benefits philosophy. Clear communication about what happens to unused funds is crucial so that employees understand how their benefits will be managed from year to year. This transparency helps them plan their healthcare spending more effectively and alleviates any confusion about the HRA's benefits.

Q: What can HRA funds be used for?

A: HRA funds can be used to reimburse employees for eligible medical expenses. Eligible expenses may include deductibles, copayments, coinsurance, prescription drugs, and other healthcare expenses not covered by insurance.

Q: Are HRA reimbursements taxable?

No, HRA reimbursements are generally not taxable to the employee. Health Reimbursement Arrangements (HRAs) are designed to provide tax-free reimbursements for qualified medical expenses. This includes premiums for health insurance and other medical costs considered part of essential health benefits under the IRS guidelines. For employers, their contributions to an HRA are typically deductible as a business expense, which can also provide tax advantages to the business.

However, the HRA must be set up and operated per IRS rules to ensure that reimbursements remain non-taxable. Any deviation from these rules could potentially result in taxable benefits. Therefore, employers and employees must understand and follow the guidelines governing HRAs to maintain their tax-advantaged status.

Q: Can an employee use an HRA if they have health insurance?

Yes, an employee can use an HRA alongside their health insurance. HRAs are often designed to complement an employee’s existing health insurance plan. An HRA can reimburse the employee for out-of-pocket medical expenses not covered by their insurance, such as deductibles, copayments, and coinsurance. This setup helps reduce the overall out-of-pocket healthcare costs for employees, maximizing the benefits of health insurance and an HRA.

There are different types of HRAs, and some are designed specifically to work with certain kinds of health insurance plans. For example, an Integrated HRA must be paired with a group health plan. At the same time, an Individual Coverage HRA (ICHRA) is used when employees purchase their health insurance, possibly through the marketplace. Understanding how these arrangements work with insurance plans is key to making the most out of the benefits offered by HRAs.

Q: Can HRA funds be used to pay for insurance premiums?

A: In certain cases, HRA funds can be used to pay insurance premiums. For example, HRA funds can be used to pay COBRA premiums or premiums for individual health insurance policies purchased through the marketplace.

Q: Can HRA funds be used for over-the-counter (OTC) medications?

A: Yes, as of January 1, 2020, HRA funds can reimburse the cost of OTC medications without a prescription. This change was made as part of the CARES Act.

Q: Can HRA funds be used to pay for health club memberships or fitness equipment?

A: Generally, HRA funds can’t be used to pay for health club memberships or fitness equipment. However, certain types of HRAs, such as wellness HRAs, may allow for reimbursements for some fitness-related expenses.

Q: Can HRA funds be used to pay for cosmetic procedures?

A: No, HRA funds cannot be used to pay for cosmetic procedures that are not medically necessary. However, certain cosmetic procedures, such as reconstructive surgery after a mastectomy, may be eligible for reimbursement.

Q: Can HRA funds be used to pay for alternative therapies, such as acupuncture or chiropractic care?

A: Yes, in many cases, HRA funds can be used to pay for alternative therapies that are considered medically necessary. However, it is important to check with the specific HRA plan to see what alternative therapies are covered.

Q: Can HRA funds be used to pay for medical expenses incurred by family members?

A: Yes, HRA funds can reimburse medical expenses incurred by the employee, their spouse, and their dependents.

A better way to offer employee health benefits

There are many positive benefits to HRA accounts for employers and employees alike.

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Here's our guide on How to Set up an HRA if you want some extra reading!