What Is a Health Reimbursement Arrangement (HRA)?

What is a Health Reimbursement Arrangement?

A Health Reimbursement Arrangement (HRA) is a tax-advantaged benefit employers use to help employees pay healthcare expenses.

Instead of providing money directly to employees, employers establish an HRA and reimburse eligible healthcare costs according to the terms of the plan.

HRAs can help cover expenses such as:

• Deductibles
• Copayments
• Coinsurance
• Prescription medications
• Qualified medical expenses
• Health insurance premiums for certain types of HRAs

The types of expenses that qualify depend on the specific HRA offered by the employer.

How does an HRA work?

Each employer designs its HRA according to federal rules.

In general, the process works like this:

1. The employer establishes an HRA.
2. The employer determines which employees are eligible.
3. The employer sets reimbursement limits.
4. The employee incurs an eligible medical expense.
5. The employee submits documentation.
6. The employer reimburses the approved expense, usually tax-free.

Employees receive reimbursement only for eligible expenses described in the employer's plan documents.

Who funds an HRA?

Only the employer.

Unlike Health Savings Accounts (HSAs) and many Flexible Spending Accounts (FSAs), employees generally cannot contribute their own money to an HRA.

The employer determines:

• Annual reimbursement amounts
• Eligible expenses
• Employee eligibility
• Plan administration rules

Because HRAs are employer-sponsored benefits, the employer also owns the account.

What expenses can an HRA reimburse?

Eligible expenses depend on the type of HRA and the employer's plan design.

Many HRAs reimburse:

• Doctor visits
• Hospital care
• Deductibles
• Copayments
• Coinsurance
• Prescription drugs
• Dental care
• Vision care
• Other qualified medical expenses described in IRS Publication 502

Certain HRAs also reimburse individual health insurance premiums.

Types of Health Reimbursement Arrangements

Several types of HRAs exist under federal law.

Individual Coverage Health Reimbursement Arrangement (ICHRA)

Allows employers to reimburse employees for individual health insurance premiums and other eligible healthcare expenses. Learn more about an ICHRA.

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

Available only to eligible small employers that do not offer a group health plan. Learn more about a QSEHRA.

Excepted Benefit HRA (EBHRA)

Allows eligible employers to reimburse certain excepted benefits and qualified medical expenses under rules established by federal law.

Each type of HRA has different eligibility requirements and reimbursement rules.

HRA vs. HSA

Although both help pay medical expenses, they work differently.

Health Reimbursement Arrangement (HRA)

• Employer-funded.
• Employer-owned.
• Employees generally cannot contribute.
• Reimbursements depend on employer plan rules.

Health Savings Account (HSA)

• Individually owned.
• Contributions may come from the employee, employer, or both.
• Requires enrollment in an HSA-eligible High Deductible Health Plan.
• Funds generally remain with the individual permanently.

HRA vs. FSA

These employer-sponsored benefits also differ.

HRA

• Employer funds the account.
• Employer controls reimbursements.
• Employees generally cannot make contributions.

FSA

• Employees typically contribute pre-tax salary reductions.
• Employees elect an annual contribution amount.
• Subject to annual IRS contribution limits.

Some employers may offer both benefits together, depending on plan design and applicable federal rules.

What happens to an HRA when you leave your job?

In most cases, access to an HRA ends when employment ends because the arrangement belongs to the employer.

Some continuation rights may exist under certain circumstances, depending on the type of HRA and applicable federal law.

Employees should review their employer's benefit documents for details.

Why this matters

Healthcare expenses can be difficult to predict. An HRA allows employers to help employees pay qualified medical expenses while offering flexibility in how health benefits are designed. Understanding the different types of HRAs can also help employees compare benefit packages when choosing a job or selecting health coverage.