More technically, an HRA is an employer-funded health account that allows for tax-free reimbursement of out-of-pocket medical expenses. These accounts are owned by the employer, not the employee. As such, when an employee leaves their employer the funds stay with the employer. Your HRA is not your healthcare plan.
How to Qualify
In order to qualify for your employer HRA you must be:
- A current or former employee
- A spouse of a current or former employee
- A dependent of a current or former employee
- A spouse or dependent of a deceased former employee
Your employer must offer the HRA, as it is not a health account available to individuals. Employers can define what can be used for under their HRA provisions (as long as they reside under the larger provisions set by the IRS). Generally speaking, HRA qualified expenses are similar to those of an FSA.
One important note and recent change, regulations in the Affordable Care Act require employees to be enrolled in their employer’s healthcare plan to be eligible for an HRA.
How it Works
HRA limits are set by the IRS (each year), for 2017 employer contribution for small business HRAs are $4,950 for individuals and $10,000 for families. HRAs only reimburse health expenses that are not covered by the employee’s healthcare plan like co-pays, coinsurance, deductibles.
Eligible re-reimbursable expenses must coincide with the plan year (based on service date). Employees are 100% vested from the day they start employment. HRAs are notional arrangements which means that no funds are expensed from the employer until reimbursements are requested by the employee.
Unused funds can be only rolled over into the next year to be used for future HRA qualified expenses through month to month roll over (under a Small Business HRA) or yearly balance accrual (under an Integrated HRA), but this can depend on the specific plan structure. It is best to review your employer plan structure to better understand this arrangement.
Is It Right for Me?
If you are self-insured or your employer does not offer an HRA, you are out of luck, sorry. If an HRA is available to you, you should take advantage of this allocated (and free to the employee) qualified health expense dollars!
If you are an employer, HRAs are a great way to offset the cost of employee health expenses. Most importantly employer HRA contributions are not subject to federal or state income or payroll taxes. It’s a wonderful way to limit employee out-of-pocket health expenses.
If you need more help with health account decisions, check out our blog. We will make you a healthcare benefits expert in no time, without any extra work or effort on your end.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.