Are Health Reimbursement Arrangements Use It or Lose It?
Discover if your HRA funds expire or roll over. Learn how employer design, job changes, and plan types affect your Health Reimbursement Arrangement.
A Health Reimbursement Arrangement (HRA) is an employer-funded health benefit plan that reimburses employees for qualified medical expenses and, in some cases, health insurance premiums. Whether an HRA operates on a “use it or lose it” basis depends on the specific design and rules established by the employer. HRA characteristics vary significantly, making it essential to understand the terms of a particular plan.
Understanding HRA Funds and Carryover
Health Reimbursement Arrangements are not inherently subject to a “use it or lose it” rule, which distinguishes them from many Flexible Spending Accounts (FSAs). While FSAs commonly require employees to spend most of their funds by the end of the plan year or forfeit them, HRA funds may often roll over. The employer sponsoring the HRA determines the specific carryover policy, allowing for significant flexibility. Some plans permit unlimited carryover of unused funds from year to year, while others may impose a cap on the maximum amount that can be rolled over.
Employers set conditions for rollovers, such as allowing only a percentage of unused funds or a specific dollar limit. If an employer does not allow rollovers, unused HRA funds expire at the end of the plan year, though a grace period for submitting claims may be granted. This flexibility means employees must understand their specific plan’s rules regarding annual fund management.
HRA Funds and Job Changes
When an employee leaves their job, the HRA funds generally do not transfer with them. This is because Health Reimbursement Arrangements are employer-funded and employer-owned accounts, meaning the funds typically revert to the employer upon termination of employment. The non-portable nature of HRAs differs from Health Savings Accounts (HSAs), which are employee-owned and fully portable.
Limited exceptions exist where employees might retain access to HRA funds after leaving a job. Some HRA plans may permit continued access to funds for a short period under the Consolidated Omnibus Budget Reconciliation Act (COBRA). If a plan allows COBRA continuation for the HRA, remaining funds may be accessible during the continuation period. This continuation is not universal and depends on the employer’s specific HRA plan design.
Variations in HRA Design
While traditional HRAs have employer-defined carryover rules, certain newer types of HRAs operate under more standardized federal regulations. Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) and Individual Coverage Health Reimbursement Arrangements (ICHRAs) are examples of these. Both QSEHRAs and ICHRAs are designed to reimburse employees for individual health insurance premiums and qualified medical expenses.
For QSEHRAs, unused funds generally roll over from year to year, provided the total amount does not exceed the annual maximum contribution limit. ICHRAs also allow for the carryover of unused funds, though the employer retains some discretion in setting the specific rollover policy. These HRA types offer greater predictability regarding fund availability, reducing the likelihood of a “use it or lose it” outcome.