What Is an MRA Account and How Does It Work?
Learn the mechanics of a Medical Reimbursement Arrangement, an employer-funded benefit that works with your health plan to cover out-of-pocket medical costs.
A Health Reimbursement Arrangement (HRA) is an employer-sponsored benefit designed to help employees pay for medical costs. It is not a health insurance policy, but a separate arrangement that provides tax-free reimbursement for healthcare expenses. Some HRAs work with a company’s group health plan to cover out-of-pocket costs like deductibles. Other types allow employers to reimburse employees for the premiums of individual health insurance policies they purchase on their own.
How an HRA is Structured and Funded
An HRA is funded entirely by the employer, and employees are not permitted to contribute their own money. Each year, the employer establishes a maximum reimbursement amount for an employee. This amount is set at the employer’s discretion based on the plan design they have chosen.
These arrangements are established as notional or bookkeeping accounts. This means the employer does not pre-fund a separate cash account for each employee. Instead, funds are only paid out by the employer when an employee incurs a qualified expense and submits a valid claim for reimbursement. This “pay-as-you-go” model differs from other benefit accounts where funds are deposited in advance.
The employer defines the rules governing the HRA, which are outlined in a formal plan document. These rules dictate who is eligible to participate. Eligibility may require enrollment in the company’s group health plan or be open to employees who purchase their own individual coverage. The employer also decides whether any unused funds at the end of a plan year can be carried over, as some plans allow for rollovers while others are “use-it-or-lose-it.”
Eligible Expenses and Documentation
To use an HRA, an expense must be a qualified medical expense as defined by the Internal Revenue Service. Common examples include:
- Health insurance premiums
- Deductibles, copayments, and coinsurance
- Prescription medications
- Dental treatments
- Vision care, such as glasses or contact lenses
An employer can choose to restrict the list of reimbursable items. For instance, a company might design its HRA to only cover out-of-pocket costs related to its group medical plan, excluding expenses for dental or vision care. Employees should review their plan documents to understand which expenses are eligible.
Submitting a claim requires documentation to prove the expense was incurred and is eligible. The primary required item is an itemized receipt or invoice from the healthcare provider detailing the date of service, type of service, and cost. A credit card receipt or a balance due statement is not sufficient.
Depending on the expense, additional documentation may be necessary. For out-of-pocket costs on a group health plan, this is often the Explanation of Benefits (EOB) from the insurance carrier. For individual insurance premiums, proof of payment to the insurance company is needed. This documentation confirms the expense is a legitimate out-of-pocket cost.
Submitting a Claim for Reimbursement
To submit a claim, employees can find the required form on their company’s benefits website or through the HRA administrator’s online portal. These forms require information about the patient, the service provider, the date of service, and the expense amount.
Many plan administrators offer a secure web portal or a mobile app to upload digital copies of itemized receipts and other documentation. Submitting physical copies of the claim form and documentation by mail is also an available alternative.
After a claim is submitted, the plan administrator reviews it for eligibility and completeness, a process that takes several business days. Upon approval, the tax-free reimbursement is issued to the employee. Payment is delivered through direct deposit or a physical check.