How to Use a Health Reimbursement Arrangement

A Health Reimbursement Arrangement (HRA) is an employer-funded health benefit that reimburses employees for qualified medical expenses and, in some cases, health insurance premiums. Unlike traditional health insurance, an HRA is not an insurance policy but a mechanism for employers to provide tax-advantaged financial assistance for healthcare. Employers determine the contribution amount, and employees request reimbursement for eligible expenses up to that allocation. This arrangement offers flexibility for both employers and employees in covering healthcare needs.

Understanding Your HRA Type

The way an HRA operates depends on its type. Three common types are the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), the Individual Coverage Health Reimbursement Arrangement (ICHRA), and the Group Health Plan HRA, also known as an Integrated HRA. Each type has distinct rules regarding eligibility and what can be reimbursed.

A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is for small employers with fewer than 50 full-time employees who do not offer a group health plan. It reimburses individual health insurance premiums and other qualified medical expenses. For 2025, reimbursement limits are $6,350 for self-only coverage and $12,800 for family coverage, adjusted annually. Employees need minimum essential coverage, and the employer must offer the QSEHRA on the same terms to all eligible employees.

The Individual Coverage Health Reimbursement Arrangement (ICHRA) is available to employers of any size. It reimburses individual health insurance premiums and other qualified medical expenses. Employees must be enrolled in individual health insurance coverage, such as a marketplace plan, direct insurer plan, or Medicare Parts A and B. Unlike QSEHRAs, ICHRAs have no annual maximum contribution limits, allowing employers to set their own amounts.

A Group Health Plan HRA, or Integrated HRA, is offered with a traditional group health plan, often a high-deductible plan. It covers out-of-pocket costs like deductibles, co-payments, and coinsurance. Employees must be enrolled in the employer’s group health plan to be eligible. This HRA typically does not reimburse individual health insurance premiums.

What Your HRA Can Cover

Health Reimbursement Arrangements generally cover qualified medical expenses as defined by the Internal Revenue Service (IRS) in Publication 502. While HRAs typically align with these definitions, a specific HRA plan may have a more restrictive list of eligible expenses determined by the employer.

Common eligible expenses include deductibles, co-payments, and coinsurance. Doctor visits, hospital stays, and prescription medications are typically reimbursable. Dental and vision care, such as exams, cleanings, glasses, and contact lenses, are generally covered. Certain medical equipment and supplies, from crutches to blood pressure monitors, are also eligible.

Over-the-counter medications and menstrual care products became eligible for reimbursement without a prescription starting in 2020. Expenses generally not covered include cosmetic procedures or general health supplements unless prescribed by a medical professional. Employees should consult their specific HRA plan documents for a definitive list of what their arrangement covers.

Claiming Reimbursements

Claiming reimbursements from your HRA requires reviewing your specific HRA plan documents. These documents, provided by the employer or plan administrator, outline the exact claims process, required forms, and submission deadlines. Understanding these rules is fundamental, as requirements vary between HRA plans.

Once an eligible medical expense is incurred, gather proper documentation for a successful reimbursement claim. This typically includes an itemized receipt, an Explanation of Benefits (EOB) from your insurance company if applicable, and pharmacy details for prescriptions. Documentation must clearly show the date of service, type of service or item, provider’s name, and exact cost. For health insurance premiums, documentation should indicate the monthly premium.

Claims can be submitted through various methods. Many HRA plans offer an online portal or mobile application for uploading scanned documents. Some plans may require paper forms mailed or faxed to the plan administrator. After submission, claims are typically processed within a few business days to a few weeks, depending on the administrator.

Track the status of submitted claims and follow up if reimbursement is delayed or if additional information is requested. If a claim is denied, the plan administrator usually provides a reason, allowing employees to provide missing information or appeal the decision. Maintaining organized records of all medical expenses and HRA claim submissions is advisable.

HRA and Your Taxes

Reimbursements received from an HRA for qualified medical expenses are generally tax-free to the employee. This means the money is not considered taxable income and does not need to be reported on their tax return.

Employer contributions to an HRA are not considered taxable income for the employee, unlike a direct salary increase. These contributions and the tax-free reimbursements effectively reduce an employee’s out-of-pocket healthcare spending with pre-tax dollars.

The interaction between an HRA and a Health Savings Account (HSA) has specific tax considerations. Generally, an employee cannot contribute to an HSA if covered by a general-purpose HRA that reimburses pre-deductible medical expenses, as this can disqualify HSA eligibility. However, limited-purpose HRAs (covering only dental and vision) or post-deductible HRAs (reimbursing after a high deductible) can be compatible with HSA contributions. Employees should understand their HRA’s design and its impact on HSA eligibility to avoid unintended tax consequences.