What Is an HRA Balance and How Does It Work?

A Health Reimbursement Arrangement (HRA) is an employer-funded health benefit designed to help employees manage their healthcare costs. It serves as a structured way for employers to reimburse staff for various qualified medical expenses.

Understanding Health Reimbursement Arrangements

A Health Reimbursement Arrangement is an employer-sponsored plan that reimburses employees for eligible medical expenses and, in some cases, insurance premiums. Employers exclusively own and fund these arrangements, meaning employees do not make contributions to them. The funds are not pre-deposited into an account for the employee; instead, the employer reimburses the employee after an expense has been incurred and properly approved. Reimbursements received by employees are tax-free, and employers can claim a tax deduction for the reimbursements they make.

Managing Your HRA Balance

The “balance” in an HRA refers to the maximum amount an employer designates for reimbursement within a specific period, often a plan year. This amount represents the total pool of funds available to an employee for eligible expenses, rather than money held in a separate account in the employee’s name. Many HRAs allow for the carryover of unused funds from one plan year to the next, which can accumulate the available balance over time. However, the specific rules for carryover are determined by the employer and can vary significantly between plans.

HRA balances can cover a range of qualified medical expenses, following IRS guidelines. Common eligible expenses include deductibles, copayments, coinsurance, and prescription drugs. Some plans may permit reimbursement for dental and vision care expenses, or individual health insurance premiums. The employer defines the specific list of reimbursable expenses, so employees should review their plan documents carefully to understand what is covered.

Accessing and Using Your HRA

Employees can check their HRA balance through various channels provided by their employer or plan administrator. This includes online portals, mobile applications, or statements mailed directly to the employee.

The process for using the HRA balance involves submitting a claim for an incurred medical expense. Employees provide documentation such as receipts or Explanation of Benefits (EOB) forms to substantiate their claim.

Once a claim is submitted, the employer or their chosen third-party administrator reviews it for eligibility. If approved, the reimbursement is then processed, via direct deposit into the employee’s bank account or by check. HRA funds are forfeited if an employee leaves their job. Since the employer owns the HRA, the funds do not transfer with the employee to new employment.