What is an HRA?

Introduction

Health Reimbursement Arrangements (HRAs) are a great way for employers to help employees pay for medical expenses while keeping costs under control. Unlike traditional health insurance, HRAs allow businesses to reimburse employees for qualified healthcare costs tax-free. Whether you're an employer looking for cost-effective health benefits or an employee wondering how HRAs work, this guide will break it all down in simple terms.

What is an HRA, and how does it work?

A Health Reimbursement Arrangement (HRA) is an employer-funded account that reimburses employees for medical expenses and sometimes insurance premiums. Employers set an allowance amount, and employees can submit medical costs for tax-free reimbursement. Unlike Health Savings Accounts (HSAs), employees do not contribute to an HRA—it’s entirely funded by the employer.

What expenses can an HRA cover?

HRAs can cover a wide range of medical expenses, including doctor visits, prescription medications, hospital stays, and health insurance premiums. The exact expenses covered depend on the employer’s plan. Some HRAs allow reimbursement for dental and vision care, while others are more restricted to specific medical costs. Types of HRAs and How They Benefit Employees There are several types of HRAs, each designed to meet different needs. Here’s a look at the most common options: 1. Qualified Small Employer HRA (QSEHRA) ○ Designed for small businesses with fewer than 50 employees ○ Employers set an annual allowance for employees to use on medical expenses and insurance premiums ○ Employees must have health insurance to qualify for reimbursements 2. Individual Coverage HRA (ICHRA) ○ Allows businesses of any size to reimburse employees for individual health insurance premiums ○ Employees can choose their own plan and get reimbursed for eligible expenses ○ Can be a flexible alternative to traditional employer-sponsored insurance 3. Integrated HRA ○ Works alongside a group health plan to help employees cover out-of-pocket costs ○ Employers offer this as a supplement to their existing insurance coverage 4. Excepted Benefit HRA (EBHRA) ○ Provides reimbursement for specific benefits, like dental and vision, even if employees don’t enroll in a health insurance plan ○ Allows for additional coverage without replacing primary health insurance

Are HRA reimbursements taxable?

No, HRA reimbursements are tax-free for employees as long as they use them for qualified medical expenses. Employers also benefit because HRA contributions are tax-deductible, making it a cost-effective way to provide healthcare benefits.

Final Thoughts

HRAs offer a flexible and tax-efficient way for employers to support their employees’ healthcare costs. Whether through an ICHRA, QSEHRA, or another type, businesses can customize benefits while employees enjoy financial relief for medical expenses. If you're an employer considering an HRA or an employee wondering how to maximize its benefits, now is the time to explore your options.