How to Use HRA Funds for Qualified Medical Expenses

Health Reimbursement Arrangements (HRAs) are employer-funded health benefits designed to help employees manage medical expenses. Employers contribute funds that employees can use to pay for qualified out-of-pocket healthcare costs not covered by their health insurance plan.

What HRA Funds Cover

HRA funds are specifically intended to cover medical expenses deemed “qualified” under federal tax law. The Internal Revenue Service (IRS) outlines these eligible expenses in publications like IRS Publication 502, “Medical and Dental Expenses.” This publication serves as a comprehensive guide for what constitutes a deductible medical expense, which generally aligns with HRA eligibility.

Many common healthcare costs can be reimbursed through an HRA. These typically include deductibles, co-payments, and co-insurance amounts associated with health plans. Prescription drugs, over-the-counter medications with a doctor’s prescription, and insulin are also generally covered. Additionally, funds can often be used for dental care, including routine cleanings, fillings, and orthodontia, as well as vision care expenses like eye exams, glasses, and contact lenses.

Beyond routine care, HRAs may cover certain medical equipment, supplies, and diagnostic services. This can encompass items such as crutches, wheelchairs, and necessary medical tests. Mental health services, including therapy and counseling, are also often eligible expenses. While many HRAs do not cover health insurance premiums, some specific HRA plan designs, such as Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), may allow for the reimbursement of health insurance premiums. Individual HRA plans can have specific restrictions or additional eligible expenses, so reviewing your plan documents is always advisable.

How to Access and Use HRA Funds

Accessing your HRA funds typically involves a reimbursement process, meaning you generally pay for the eligible medical expense first. After incurring an expense, you will submit a claim to your HRA administrator to receive your money back. This process requires careful documentation to ensure your claim is approved.

When preparing a claim, you will need to gather specific documentation. This usually includes an itemized receipt from the service provider or pharmacy, showing the date of service, the type of service or item, and the amount paid. For services covered by your health insurance, an Explanation of Benefits (EOB) statement from your insurer is often required. For certain medical devices or therapies, a letter of medical necessity or a doctor’s note may be necessary to demonstrate that the expense is medically required.

Once you have the required documentation, you will typically complete a claim form provided by your HRA administrator. These forms ask for details about the expense and the amount you are requesting for reimbursement. Many administrators offer convenient online portals for submitting claims, though some may still accept submissions via mail or fax. After submission, claims generally undergo a review process that can take anywhere from a few business days to a couple of weeks.

Upon approval, the reimbursement is usually issued directly to you, often through direct deposit into your bank account or via a check. While less common for traditional HRAs, some plans may offer a debit card linked to your HRA funds, allowing for direct payment at the point of service, thereby bypassing the reimbursement step. Maintaining thorough records of all submitted claims and supporting documentation is always recommended, especially for tax purposes or future reference.

HRA Fund Rules and Limitations

Health Reimbursement Arrangements are unique in that they are entirely employer-owned and controlled. Employers establish the HRA’s specific terms, including annual contribution amounts and eligible medical expenses, all within general IRS guidelines. Employers also manage the funds, which remain their property until used to reimburse an approved expense.

A significant aspect of HRA plans relates to the rollover of unused funds. The decision of whether unused funds can be carried over from one plan year to the next is entirely at the employer’s discretion. Some HRA plans operate on a “use-it-or-lose-it” basis, where any remaining balance at the end of the year is forfeited. However, many employers allow a portion or all of the unused funds to roll over, providing greater flexibility for employees.

HRAs are generally not portable benefits, meaning the funds are typically tied to your employment with the sponsoring company. If your employment ends, you will usually forfeit any remaining HRA balance, unless it is a specific type of HRA designed for retirees. This lack of portability distinguishes HRAs from other health savings accounts.

HRA funds can also coordinate with other types of health coverage you may have, such as a spouse’s health plan or Medicare. The specific coordination rules depend on the HRA plan design and your other coverage. Only employers contribute to HRAs; employees cannot add their own money to these accounts. Reimbursements for qualified medical expenses are typically tax-free to the employee, providing a valuable financial benefit.