Health reimbursement arrangements (HRAs) are becoming increasingly common as more employers are seeking an alternative to traditional health benefits. Employees that are newly offered an HRA through their employer can be confused about how an HRA works. They might be used to another type of health benefit, like traditional group health insurance. This could even be the first time they’ve been offered a benefit by an employer.
For employees in this situation and employers wanting to help them, we’ve compiled 7 of the questions employees most frequently ask about HRAs.
1. Who handles the HRA money?
The money or allowance offered through an HRA is either handled by the employer directly or a third-party administrator. Some companies opt for an annual allowance, or they might split the total into monthly increments.
HRAs are often confused with a health savings account (HSA) or flex spending account (FSA). With HSAs and FSAs, the employee owns an account into which contributions are made. The employee then uses a debit card as they would with a checking account to make payments for their out-of-pocket health care costs. The employee owns the funds, and they can make their own contributions to the account.
In a health reimbursement arrangement, or HRA, the company offers its employees a specific allowance and then reimburses them for medical costs through that allowance. With an HRA, the employer owns the funds. In most cases, companies provide reimbursements through the employee’s paycheck, but they could also pay through separate check, cash, or an ACH transfer. Rarely, an employer may provide an HRA debit card, but the funds are still employer-owned. Employees can’t make contributions to their HRA allowance.
2. How do I get reimbursed with my HRA?
To have their expenses verified, employees must provide documentation showing the type of expense, the cost of the expense, and the date of service. The expense must be incurred by the participating employee or their dependents.
Oftentimes, employees will submit an itemized statement to substantiate their expenses. The information may be shown together in one document or provided through multiple documents. Employees will either provide documents directly to their employer, or by submitting them to a third-party administrator or benefits advisor.
3. What expenses are eligible?
The IRS allows tax-free reimbursement of certain health care expenses through an HRA, generally items or services whose main purpose is to alleviate or prevent a disability or illness.
Here’s a list of some common eligible expenses:
- Doctor visits
- Dental services
- Vision services
- Health insurance premiums
- First aid kits
- Hospital care
- Emergency services
Eligible expenses can vary by HRA type. An employer might also limit which expenses are eligible for reimbursement.
You can find out more about reimbursable expenses by checking out IRS Publication 502.
4. How long does it take to get reimbursed?
Once an employee has submitted an expense, employers will generally reimburse qualified expenses within 30 days, often by the next paycheck.
Employees enrolled in an HRA can always check with their employers to find out more about when to expect their reimbursements.
5. What about my tax credit?
Employees participating in an HRA who have individual insurance coverage may be eligible to receive a federal subsidy to help pay their insurance premium. This subsidy is called a premium tax credit. Depending on the type of HRA, there are different rules about how a premium tax credit should be handled.
Let’s take a look at how premium tax credits work with some of the most commonly offered HRAs:
- ICHRA: Employees can’t receive a tax credit and participate in the ICHRA. If they’re eligible for a tax credit because the allowance they’re offered is unaffordable, they must choose between accepting the tax credit and participating in the ICHRA.
- QSEHRA: Employees offered a QSEHRA who are eligible for a premium tax credit should reduce their credit by the amount of allowance they’re offered regardless of how much they’re reimbursed.
- Group HRA (integrated HRA): This HRA is meant to be offered in conjunction with group health insurance, therefore, premium tax credits aren’t a consideration.
- Excepted benefit HRA: This HRA doesn’t allow reimbursement of major medical insurance premiums, therefore, premium tax credits aren’t a consideration.
6. Do I get to take the allowance with me if I leave?
The allowances offered under an HRA are employer-owned. That means the allowance is available for employees to use for out-of-pocket health care costs, but ultimately belongs to the company.
Unlike FSAs and HSAs, the allowance is not portable and doesn’t go with an employee if they leave the company.
7. Is my HRA allowance “use it or lose it” by year?
Allowances may roll over year to year at the discretion of the business. If allowances don’t roll over at the end of the year, employees will lose out on the funds if they’re not used within the allotted timeframe.
Employers must provide a runout period allowing employees to submit expenses for reimbursement that occurred during the plan year. This allows employees a grace period after the plan year has ended to use their allowance before the funds are no longer available.
The HRA is a powerful tool for employers looking to hire and keep talented employees. For employees, it can make a real difference to their physical and financial well-being. Receiving a new health benefit is exciting, but can leave employees with many questions. Employees who are informed about how their benefits work are empowered to utilize them to their fullest extent.