Healthcare costs can account for a significant portion of employees’ expenses. A health reimbursement account provides a way for a business to help its employees with their healthcare costs.
A health reimbursement account (HRA) is an employer-funded account that reimburses employees for covered out-of-pocket medical expenses. Employees typically must pay for their medical expenses themselves and then submit claims to receive a reimbursement. These accounts usually can’t be used to pay for medical expenses directly.
Unlike most flexible spending accounts (FSA) and health savings accounts (HSA), most HRAs are exclusively funded by employers. Employees usually don’t make any contributions to these accounts.
There is no legally mandated maximum contribution limit for HRAs. In most cases, employers are free to put as much as they like into these accounts. This is another way in which HRAs differ from HSAs and FSAs, which both have maximum contribution limits.
In order to qualify for reimbursement from an HRA, a medical expense must meet all requirements of Section 213 of the Internal Revenue Code. The IRS often lets businesses further restrict what their plan considers a qualified medical expense if businesses want to.
While businesses frequently can limit qualified expenses as they wish, most plans cover a broad array of medical expenses. Some commonly covered costs include:
Qualified medical expenses for family members are typically eligible for reimbursement from an HRA. In general, any family member that an employee claims as a dependent is covered by the employee’s HRA. This may include spouses, children and, in a few cases, other family members.
Any HRA benefits that employees don’t use within a year are usually forfeited, as their benefits typically reset at the end of either the calendar year of fiscal year. A few businesses let their employees’ benefits roll over from year to year, so any that aren’t used in one year aren’t necessarily forfeited.
The funds in an HRA, however, usually aren't lost. They remain in the account and can be used to help fund the account in the next year.
HRAs are generally provided by businesses to help employees with healthcare costs that their health insurance doesn’t cover. They may be used to help pay a health insurance plan’s deductible (especially if employees have a high deductible plan) or cover medical expenses that aren’t covered by employees’ health insurance.
A health reimbursement account is usually offered as part of a benefits package. To learn more about HRAs and benefits packages, business owners should speak with an advisor who specializes in these kinds of products.