Can I Have an HRA While on Medicare?

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. Employers define eligible expenses up to an annual limit. HRAs are not physical accounts, but an agreement for reimbursement upon submission of valid medical expenses.

Medicare is a federal health insurance program primarily for individuals aged 65 or older, though it also covers some younger people with specific disabilities or conditions. It consists of Part A (hospital insurance), Part B (medical insurance), Part C (Medicare Advantage), and Part D (prescription drug coverage). This article explores whether an individual can maintain an HRA while enrolled in Medicare, detailing compatible HRA types and their utilization.

HRA and Medicare Compatibility Rules

Traditional group HRAs are generally not compatible with Medicare Part A or B because they typically do not satisfy the Minimum Essential Coverage (MEC) requirements on their own, nor are they integrated with a group health plan that provides MEC. This means individuals enrolled in Original Medicare often cannot simultaneously benefit from a standard HRA offered by an employer as their sole health coverage arrangement. The primary reason for this incompatibility is that such HRAs are designed to supplement a primary group health plan, not replace it, and Medicare serves as primary coverage.

However, specific types of HRAs are designed to work in conjunction with Medicare, offering flexibility for both employers and individuals. An Individual Coverage HRA (ICHRA) is one such compatible option, allowing employers to reimburse employees for individual health insurance premiums, including Medicare Part A and B premiums, or Medicare Advantage plan premiums. For an ICHRA to be compatible with Medicare, the employee must be enrolled in Medicare Parts A and B, or a Medicare Advantage plan, and the employer must permit the use of ICHRA funds for these purposes. This arrangement allows employers to offer a health benefit even if they do not provide a traditional group health plan.

Another compatible HRA type is the Qualified Small Employer HRA (QSEHRA), which can be utilized by small employers that do not offer a group health plan to their employees. QSEHRAs are permissible for employees enrolled in Medicare, and funds can be used to reimburse Medicare Part B and Part D premiums, as well as other qualified medical expenses. The QSEHRA is not subject to the same integration rules as traditional HRAs, making it a viable option for those with Medicare. Annual contribution limits for QSEHRAs are updated by the IRS each year; for 2025, the individual limit is $6,350.

Retiree HRAs represent a specific category of employer-sponsored HRAs designed to help former employees cover healthcare costs during retirement. These HRAs are commonly structured to be compatible with Medicare, enabling retirees to use the funds to reimburse various Medicare-related expenses. Retiree HRAs typically allow for the reimbursement of Medicare premiums and out-of-pocket costs, providing a valuable benefit for individuals transitioning into Medicare coverage. The specific terms and eligible expenses for a Retiree HRA are defined by the former employer’s plan document.

Allowable HRA Reimbursements for Medicare Expenses

For individuals with an HRA that is compatible with Medicare, such as an ICHRA, QSEHRA, or Retiree HRA, the funds can be used to reimburse a variety of Medicare-related expenses. A significant benefit of these HRAs is their ability to cover Medicare premiums, which can represent a substantial cost for many beneficiaries. This includes premiums for Medicare Part B, which covers outpatient medical services and doctor visits. Additionally, premiums for Medicare Part D, which provides prescription drug coverage, are generally eligible for reimbursement.

Beyond the standard Medicare parts, HRAs can also reimburse premiums for Medicare Supplement Insurance (Medigap) policies. Medigap plans help cover some of the out-of-pocket costs that Original Medicare does not, such as deductibles, copayments, and coinsurance. Premiums for Medicare Advantage (Part C) plans, which are private health plans that bundle Part A, Part B, and often Part D benefits, are also commonly eligible for HRA reimbursement. The specific types of premiums covered will depend on the HRA plan design established by the employer.

In addition to premiums, HRA funds can be used to cover various out-of-pocket costs associated with Medicare-covered services. This includes deductibles, which are the amounts an individual must pay before Medicare begins to cover costs. Copayments, fixed amounts paid for a covered service, and coinsurance, a percentage of the cost of a covered service, are also typically reimbursable. These reimbursements help reduce the financial burden of healthcare for Medicare beneficiaries.

Furthermore, compatible HRAs can cover other qualified medical expenses as defined by the Internal Revenue Service (IRS), even if these expenses are not directly covered by Medicare. This broad category can include costs for services like dental care, vision care, and prescription drugs not covered by a Part D plan. The HRA plan document dictates the specific list of eligible expenses, so beneficiaries should always review their plan details to understand what can be reimbursed. Employers have discretion in determining which IRS-qualified medical expenses are eligible under their specific HRA plan.

Navigating HRA Use with Medicare

When an individual has an HRA compatible with Medicare, understanding how benefits are coordinated becomes important for managing healthcare costs. In most instances, Medicare acts as the primary payer, meaning it processes claims first and pays its share of the covered medical services. After Medicare has processed the claim, the HRA typically functions as a secondary payer, reimbursing the remaining eligible out-of-pocket costs, such as deductibles, copayments, or coinsurance, as defined by the HRA plan. This coordination helps to minimize the individual’s financial responsibility for healthcare expenses.

A significant advantage of HRA reimbursements is their tax treatment. Qualified medical expense reimbursements received from an HRA are generally tax-free to the employee. This means that the funds received to cover eligible healthcare costs, including Medicare premiums and out-of-pocket expenses, are not considered taxable income, providing a valuable financial benefit. This tax-advantaged status makes HRAs an attractive component of an overall healthcare strategy.

The availability of an HRA can influence an individual’s Medicare enrollment decisions, particularly concerning supplemental coverage or prescription drug plans. For example, if an HRA covers Medicare Part D premiums and a significant portion of prescription drug costs, an individual might factor this into their decision regarding which Part D plan to choose or whether to rely more heavily on the HRA for drug expenses. Similarly, an HRA that covers Medigap premiums might make a Medigap policy a more affordable option for supplementing Original Medicare. Individuals should carefully assess their HRA benefits against their anticipated healthcare needs and Medicare plan options to make informed choices.

The responsibility for managing an HRA and Medicare benefits is shared between the employer and the individual. Employers establish the HRA, fund it, and set the rules for eligible reimbursements, providing the framework for the benefit. The individual, however, is responsible for enrolling in Medicare, understanding their HRA plan details, incurring eligible expenses, and submitting claims for reimbursement according to the employer’s established procedures. Proactive engagement with both the Medicare program and the HRA administrator helps ensure individuals maximize the benefits available to them.