This guide provides answers to frequently asked questions (FAQs) about Health Reimbursement Arrangements (HRAs). Questions and answers regarding Qualified Small Employer HRAs (QSEHRAs), can be found here.
A Health Reimbursement Arrangement (HRA) is part of consumer driven healthcare, allowing participants to use set aside money to pay for out-of-pocket medical expenses for themselves and their families. While HRAs have the same basic legal guidelines as other types of reimbursement accounts, they differ in that they’re funded exclusively by the sponsoring employer. Funding amounts and eligible expenses are unique to each employer. Refer to the HRA FAQs below to find the answers to some common questions about these tax-advantaged accounts.
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 to pay for eligible medical expenses.
Who contributes to an HRA?
By law, HRAs are funded only by the employer. Employees are not permitted to contribute. In addition, the HRA funds do not count towards an employee’s gross income.
What are the HRA annual contribution limits?
That depends on the plan setup, which is determined by the employer. There are no government-imposed limits on a standard HRA.
When is my HRA funded?
Depending on plan parameters, an HRA may be funded monthly, quarterly, semi-annually, annually, some other time period, or even by claim. Refer to the Summary Plan Description (SPD).
What is an HRA eligible expense?
HRA eligible expenses are determined by the plan setup. However, they must comply with the IRS regulations regarding eligible medical expenses. Common HRA-reimbursable expenses include copays, deductibles, and prescriptions. Refer to the SPD for more information.
What is a Summary Plan Description?
The Summary Plan Description (SPD) is a required document issued by the sponsoring employer which outlines all plan terms and conditions for participants and beneficiaries. The SPD provides details on:
- Dates for the plan year
- 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
Which expenses cannot be covered by an HRA?
According to IRS publication 502, the following expenses are ineligible for reimbursement:
- 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
Can I get reimbursed from both my HRA and FSA (or HSA)?
You cannot claim the same expense twice (or more) in order to get reimbursed from multiple accounts. In other words, you cannot get reimbursed by your HRA and the FSA for the same expense. There is no “double dipping.”
If you have an HRA and FSA (or HSA), consult your SPD to find out which account pays first. There are some situations that may allow reimbursement from multiple accounts, though not for the same total expense. For example, say you have an HRA and FSA, and you incur a $500 bill. In your HRA, you have $200 available to spend, so you receive reimbursement for that $200. The remaining $300 may be covered by the FSA since that amount had yet to be reimbursed.
If I leave the company, can I keep the funds?
An HRA is employer-owned, and employees cannot keep any remaining funds when they leave their employer, whether termination is voluntary or involuntary. However, some employers have retirement HRAs or other provisions that allow the use of the funds for a certain time period. Consult your SPD.
Can my HRA link to a debit card?
Some HRAs can be linked to a benefits debit card. Refer to the SPD to find out if your plan offers one.
Is my HRA health insurance?
No. HRAs are not health insurance. However, they are usually paired with an employer’s health insurance plan (see the SPD). In addition, you cannot pay for health insurance premiums with funds from your HRA.
Who receives the tax deduction benefit from an HRA?
As the employer funds the HRA, the employer receives the tax benefits from the contribution amount. However, HRA funds do not count towards an employee’s income. As such, employees are not taxed on the benefit amount.
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 allows it.
DataPath Summit is the cloud-based, ‘everything you could need’ solution for FSA, HRA, and QSEHRA account administration, with streamlined financial processes including benefits debit cards and electronic payments.