How to Use HRA Money for Eligible Medical Expenses

A Health Reimbursement Arrangement (HRA) is an employer-funded health benefit plan designed to help employees pay for qualified medical expenses. Unlike other health accounts, only employers contribute money to an HRA, not employees. This arrangement allows employers to provide tax-free reimbursements for healthcare costs, offering a valuable benefit to their workforce.

Understanding Eligible Expenses

Health Reimbursement Arrangements (HRAs) cover a range of medical expenses, generally aligned with what the Internal Revenue Service (IRS) defines as qualified medical expenses. Common eligible expenses encompass doctor’s visits, hospital stays, prescription medications, dental care, and vision care, including eyeglasses, contact lenses, and exams.

Beyond these common categories, HRAs can cover other significant costs like chiropractic care, mental health services, and certain medical equipment. While IRS guidelines provide a broad framework, your employer’s specific HRA plan document will define precisely which expenses are covered. For instance, some plans may allow reimbursement for over-the-counter items, while others might not. Generally, expenses like cosmetic procedures or general health supplements not prescribed for a specific medical condition are not eligible for reimbursement.

Navigating the Reimbursement Process

Obtaining reimbursement from an HRA involves a structured process that requires careful attention to documentation. The first step typically requires you to pay for the eligible medical expense out-of-pocket. After payment, you will need to gather specific documentation to support your claim. This documentation usually includes an itemized receipt from the service provider, clearly showing the date of service, the type of service or item, and the cost.

For services covered by your health insurance, an Explanation of Benefits (EOB) from your insurer is often required. This document details what your insurance covered and what portion remains your responsibility. In some cases, such as for certain over-the-counter medications or specific treatments, a doctor’s note or prescription may be necessary to prove medical necessity. Once you have compiled the required documents, you can submit your claim through various methods, which often include an online portal, a mobile application, or traditional mail or fax.

After submission, the HRA administrator will review your claim. The processing timeline can vary, but reimbursements are typically processed within a few business days to a couple of weeks. It is advisable to track the status of your claims through the provided system and to retain copies of all submitted documents for your records. Review any communication from the HRA administrator promptly, such as requests for additional information or notification of approval.

Specific HRA Types and Usage Rules

Several types of Health Reimbursement Arrangements exist, each with specific rules for how funds can be used.

Standard HRA (Group HRA)

A Standard HRA, often referred to as a Group HRA, is typically offered alongside an employer’s traditional group health plan. These HRAs usually reimburse out-of-pocket medical expenses such as deductibles, co-payments, and coinsurance, but generally do not cover health insurance premiums. Unused funds may or may not roll over to the next year, depending on the plan design.

Qualified Small Employer HRA (QSEHRA)

The Qualified Small Employer HRA (QSEHRA) is designed for small employers with fewer than 50 full-time employees who do not offer a traditional group health plan. QSEHRAs allow employers to reimburse employees for individual health insurance premiums and other qualified medical expenses. These plans have annual contribution limits set by the IRS, which for 2024 are $6,150 for self-only coverage and $12,450 for family coverage. Funds may roll over year to year.

Individual Coverage HRA (ICHRA)

The Individual Coverage HRA (ICHRA) allows employers of any size to reimburse employees for individual health insurance premiums and other qualified medical expenses. ICHRA offers significant flexibility, as it can be offered as an alternative to, or in conjunction with, a traditional group health plan. There are no IRS-imposed contribution limits for ICHRAs.

Retiree HRA

Retiree HRAs are established for former employees, allowing them to use funds for eligible medical expenses in retirement. These typically feature rollover provisions for unused balances.

Key Considerations for HRA Use

Maximizing the benefits of your Health Reimbursement Arrangement requires a clear understanding of its specific terms and diligent record-keeping. The most important step is to thoroughly review your specific HRA plan document, often called the Summary Plan Description (SPD), provided by your employer. This document outlines the exact eligible expenses, reimbursement procedures, and any unique rules pertaining to your plan. Understanding whether your HRA funds roll over from year to year or if there’s a “use-it-or-lose-it” policy is also crucial for effective financial planning.

Reimbursements received from an HRA for qualified medical expenses are generally not considered taxable income, providing a significant tax advantage. Maintaining meticulous records of all medical expenses, including itemized receipts and Explanation of Benefits (EOBs), is a practical tip for seamless reimbursement. These records serve as proof of expense and are necessary for submitting claims. If your employment ends, the fate of your HRA funds depends on your specific plan’s termination rules, as HRAs are typically not portable and funds may be forfeited.