Definition and Examples
The Health Reimbursement Arrangement (HRA) is a health plan based on an account that employers can offer to employees instead of a traditional group health plan. The employer adds money to this account. When you have eligible medical expenses such as insurance costs or deductibles, these costs are deducted from your HRA until your HRA balance is exhausted.
How does a Health Reimbursement Arrangement work?
The rules for using your HRA funds differ from one employer to another. There are also many different design options that an employer can choose from.
Here are four common designs for Health Reimbursement Arrangements for individual coverage:
- Employer Pays First: With this type of HRA, you can request reimbursements immediately. Funds can be used to cover 100% of eligible services until they are exhausted.
- You Pay First: This type of HRA has a deductible. Until you pay a specified amount out of pocket, you will not be able to request reimbursement from your HRA funds.
- Split Deductible: With a split deductible, the employer designates a certain percentage of your medical expenses that your HRA can pay. You then pay the remainder. For example, you might pay 25% while the HRA pays the remaining 75%. A 50-50 split is another common HRA option.
- You Pay First, Then Split: If you have a split deductible on your HRA, you must pay the HRA deductible first. You then pay a certain percentage of your medical expenses, and the HRA pays the rest.
The amount you must pay before you can use your HRA depends on the design chosen by your employer. Thus, their decisions also impact the amount you pay for your healthcare.
How do you use HRA funds?
The methods for accessing your HRA funds also vary by company. However, there are three common methods an employer can choose from:
- Direct Reimbursement: With direct reimbursement, you do not need to do anything to get the funds from your HRA. It goes directly to the healthcare provider.
- Debit Card: Some HRAs are linked to a debit card that you can use to pay for eligible medical expenses.
- Reimbursement Request: First, you pay for medical costs, then request reimbursement from your HRA.
Make sure to carefully review your company’s HRA rules to know how to access the funds when you need them.
What do Health Reimbursement Arrangements cover?
While the specific terms of your HRA may vary based on the options chosen by your employer, you can usually use it to cover medical expenses, including:
- Co-insurance
- Deductibles
- Copayments
- Medical premiums
HRA funds can also be used for exceptional benefits to pay for healthcare costs such as:
- Vision coverage
- Dental coverage
- Deductibles
- Short-term and limited duration premiums
- Healthcare costs not covered by your primary health insurance
Although many medical expenses are covered, it is important to check the details of your HRA plan. For example, some HRAs may not allow the use of funds to cover your copayments.
HRA vs FSA
Health Reimbursement Arrangements are not the only type of health savings accounts. Flexible Spending Accounts (FSAs) are also common. Here are some differences between them:
| HRA | FSA |
|---|---|
| Available to anyone whose employer offers an HRA and has health insurance coverage (HRAs do not require health insurance continuity) | Available to anyone with a health insurance plan provided by an employer that also offers an FSA |
| Employer-funded | Employee-funded |
| Employer-funded | Both you and the employer contribute |
| No maximum limit (regular HRA); $1,800 annually (qualified benefits HRA) | $2,850 annually |
| Varies by employer | Some may roll over, but the employer must choose that |
| No | No |
The largest
The difference between HRA and FSA is the amount of control the employer has over the account. With FSA, the employer owns the account and can add funds to it using pre-tax dollars from your paycheck. While the employer can also contribute on your behalf, the maximum contribution is $2,850 as of 2022. For HRA, the account belongs to your employer, and you cannot contribute to it.
Since the employer chooses all the details of the HRA plan for your company, it is important to read the documents to ensure you understand how it works. You should receive a detailed notice at least 90 days before the start of the plan year, giving you ample time to enroll during the open enrollment period.
If you miss the deadline, you can enroll during the next open enrollment period. You can only enroll outside this window if you experience a qualifying life event (such as marriage or childbirth), or when you first join the company.
Source: https://www.thebalancemoney.com/what-is-a-health-reimbursement-arrangement-hra-5209294
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