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Lorraine Roberte is an insurance writer for The Balance. As a personal finance writer, her expertise includes money management and insurance-related topics. She has written hundreds of reviews of insurance products.
Updated on March 18, 2022 In This Article In This Article
A health reimbursement arrangement (HRA) is an account-based health plan employers can offer to employees instead of a traditional group health plan.
A health reimbursement arrangement (HRA) is an account-based health plan employers can offer to employees instead of a traditional group health plan. The employer adds funds to this account. When you have qualified medical expenses such as a coinsurance or copayment, that cost comes out of your HRA until your HRA fund is depleted.
An HRA is not a type of insurance. If your employer offers an HRA, you’ll need to sign up for individual health insurance coverage from the Health Insurance Marketplace or through a private plan before you can participate.
With an HRA, your employer funds, owns, and manages the account. This means the employer has more control over the account compared to other health savings accounts (HSAs). The account manager also has options on how to set it up.
For example, some companies allow you to roll over any unused funds from one year to the next, while others don’t. Additionally, the employer also selects which type of medical services are allowed to be reimbursed from the HRA. This means you may notice differences between one company’s health reimbursement account and the next.
There are no annual minimums or maximums for a regular HRA, so there isn’t a limit to how much money your employer can contribute to the account. Additionally, the money can go in all at once as a lump sum, or your employer can make contributions each month.
An “excepted benefit HRA” is one that has wider flexibility in regard to reimbursements, such as allowing reimbursement for dental or vision coverage. It also doesn’t require employees to enroll in a health care plan to use, but it limits the contribution amount to $1,800 per year.
The rules for using your HRA funds vary from employer to employer. There are also many different design options your employer can choose from.
Here are four common design structures for individual coverage health reimbursement arrangements:
The amount you have to pay before you can use your HRA depends on the structure your employer selected. As such, their decisions also impact how much you pay for your medical care.
Here’s an example of how an HRA might work if you have to pay first. Let’s say you get hurt and need to go to the hospital. Your medical bill is $5,000, but your traditional health insurance plan has a $4,000 deductible. You have an HRA with $2,000 in it; however, your employer set up a $500 deductible that you must pay before you can access the funds.
This means you must pay the first $500 of your bill to cover the HRA deductible. This money also counts toward your traditional health insurance deductible.
Once this is paid, your HRA kicks in and you apply all $2,000 toward your health care plan’s deductible. With that payment, you’ve now covered $2,500 of your $4,000 health insurance deductible ($500 out of pocket + $2,000 from the HRA).
You still have $1,500 remaining before meeting your health insurance deductible ($4,000 - $2,500 = $1,500). You’ll need to pay that out of pocket as well. Once your deductible is met, your health care plan coverage kicks in.
Instead of having to pay your entire $4,000 deductible out of pocket—as you would without an HRA—you only paid a total of $2,000 (the initial $500 for your HRA deductible and the remaining $1,500). In the end, having an HRA saved you money.
The way you access your HRA funds also varies between companies. However, there are three common methods employers can select.
Make sure you review your company’s HRA rules carefully to know how to access the money when you need it.
While the specific terms of your HRA may vary based on what options your employer selected, you can typically use it to cover medical expenses, including:
An excepted benefit HRA can be used to pay for medical care, such as:
While many medical expenses are covered, it’s important to check the details of your plan. For instance, some HRAs don’t allow you to use the funds to cover your copays.
Health Reimbursement Arrangements aren’t the only type of health savings account. Flexible spending accounts (FSAs) are also popular. Here are a few differences between them:
| HRA | FSA | |
| Eligibility | Anyone whose employer offers an HRA and who has health insurance coverage (excepted benefit HRAs don’t required health insurance coverage) | Anyone who has an employer-sponsored health insurance plan whose employer also offers an FSA |
| Account Owner | Your employer | You |
| Contributions | Your employer | You and your employer |
| Maximum Contribution | No maximum (regular HRA); $1,800 per year (excepted benefit HRA) | $2,850 per year |
| Rolling Over Unused Funds | Varies by employer | A portion of it may, but your employer must elect to do so |
| Interest-Bearing Account | No | No |
The biggest difference between an HRA and an FSA is the amount of control your employer has over the account. With an FSA, you own the account and can add money to it with pretax dollars from your paycheck. Although employers can also contribute on your behalf, the maximum contribution is $2,850 as of 2022. With an HRA, the account belongs to your employer, and you can’t contribute to it.
Since your employer selects all the details of your company’s HRA plan, it’s important you read the documentation to make sure you understand how it works. You should receive a detailed letter 90 days before the start of the plan year, giving you plenty of time to sign up during the open enrollment period.
If you miss the deadline, you can sign up during the next open enrollment. You can only sign up outside of this window if you experience a qualifying life event (such as getting married or having a baby), or when you first join a company.
