health reimbursement arrangement (HRA)

What is a health reimbursement arrangement (HRA)?

A HRA (health reimbursement arrangement) is a  pre-tax way for employers to reimburse employees for qualified medical expenses incurred by the employee or their spouse or dependents. The rules for HRAs are outlined in IRS Publication 969. HRAs are sometimes referred to as health reimbursement accounts.

  • HRAs must be funded entirely by the employer, so nothing is deducted from the employee’s paycheck.
  • The HRA contribution that the employer makes is not counted in the employee’s income.
  • Unlike FSAs and HSAs, there’s no upper limit on how much employers can contribute to their employees’ HRAs, although non-discrimination rules apply. There are also no minimum contribution requirements for HRAs.
  • Although the IRS defines what constitutes qualified medical expenses, employers can further limit the expenses for which employees can seek reimbursement under their HRA.
  • In order to be reimbursed, an employee has to provide documentation showing that they incurred an eligible expense.
  • In most cases, an HRA benefit makes an employee ineligible to contribute to an HSA (even if they have an HSA-compliant high-deductible health plan), although there are some limited types of HRAs that can be used in conjunction with an HSA.
  • Under federal rules related to the implementation of the ACA, employers were not allowed to offer an HRA unless it was integrated with an employer-sponsored group health insurance plan. These rules were relaxed in 2017 for small employers (see QSEHRA) and further relaxed, for all employers, as of 2020 (see ICHRA).

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