Does HRA Cover Prescriptions? It Depends on Your Plan

A Health Reimbursement Arrangement (HRA) is an employer-funded health benefit designed to help employees manage their healthcare costs. This arrangement allows employers to reimburse employees for qualifying medical expenses on a tax-free basis. Unlike traditional health insurance, an HRA is not an insurance policy but a mechanism for employers to assist with out-of-pocket medical expenditures. The funds within an HRA are owned by the employer, and employees are reimbursed after they incur an eligible expense.

HRA Eligible Medical Expenses

Health Reimbursement Arrangements cover a broad range of medical expenses as defined by the Internal Revenue Service (IRS) in Publication 502. These typically include costs for medical, dental, and vision care. Qualifying expenses often encompass deductibles, copayments, and coinsurance amounts not covered by a primary health insurance plan.

Prescription medications are generally included as an eligible expense for HRA reimbursement, covering both brand-name and generic drugs prescribed by a doctor. Over-the-counter (OTC) drugs are also eligible without a prescription, though insulin remains an exception.

To substantiate a claim, specific documentation is required. This documentation must include the provider or pharmacy name, the date of service or purchase, a description of the item, and the amount paid. An itemized receipt, invoice, or an Explanation of Benefits (EOB) usually serves as sufficient proof.

Different HRA Plan Types

The type of HRA an employer offers significantly influences which expenses are eligible for reimbursement, including prescription coverage.

Qualified Small Employer HRA (QSEHRA)

This HRA is for businesses with fewer than 50 full-time employees that do not offer a group health plan. QSEHRAs can reimburse employees for individual health insurance premiums and qualified medical expenses.

Individual Coverage HRA (ICHRA)

Employers of any size can use an ICHRA to reimburse employees for individual health insurance premiums and other qualified medical expenses. Employees must be enrolled in individual health coverage to utilize these funds. This flexibility enables employees to choose plans that best fit their personal needs.

Integrated HRAs (GCHRAs)

Also known as Group Coverage HRAs, these are typically offered alongside a traditional group health insurance plan, often a high-deductible health plan. GCHRAs cover out-of-pocket medical expenses like deductibles, copayments, and coinsurance, but generally do not reimburse health insurance premiums. The specific design of an integrated HRA determines whether it covers prescription drug costs before or after the primary health plan’s deductible is met.

Reimbursing Prescription Costs

The process for obtaining reimbursement for prescription costs through an HRA involves a few key steps. After an eligible expense is incurred, the employee must submit a claim to their employer or the HRA administrator. This can be done through an online portal, a mobile application, or a paper form.

Submitting the necessary documentation is a crucial part of the reimbursement process. This includes an itemized receipt from the pharmacy or an Explanation of Benefits (EOB) showing the patient’s name, date of service, medication description, and amount paid. The administrator reviews the claim to ensure it meets the plan’s and IRS guidelines.

Once approved, reimbursement is issued to the employee. Processing times vary, but claims are generally processed within 7 to 14 business days, with payment following within 7 to 10 days. Reimbursement methods often include direct deposit or a physical check.