What is an HRA plan? How do HRA plans work?

Employers and employees face many healthcare questions during open enrollment every year. Employers faced with choosing which type of plans to offer employees have many questions, such as what is HRA insurance? What is an HRA account, and how does it work?

What is an HRA Plan?

Health Reimbursement Arrangements, or HRAs, are also commonly known as Health Reimbursement Accounts. An HRA is an employer-funded group health plan. With this plan, employees are reimbursed tax-free dollars for qualified medical expenses and, sometimes insurance premiums. In addition, any unused funds may roll over for use the following year at the employer’s discretion. Individual Coverage HRAs do not have any sort of limit, meaning  there are no pre-set limitations based on plan type for how much money an employer can use on an HRA each year.

→ Read our comprehensive HRA Guide! 

How does an HRA work?

HRAs are funded by employers to cover qualified medical expenses for employees. Certain types of HRAs like the Individual Coverage HRA and the Qualified Small Employer HRA can reimburse for health insurance premiums as well. The employer determines the amount it will put into the plan, and employees may request reimbursement for medical expenses up to the amount the employer has funded.

An HRA is not technically an account; however, the term health reimbursement account is often used interchangeably with health reimbursement arrangement.

“Account” feels like a more familiar term because the arrangement operates and feels like an account. For example, employers may provide employees with an HRA debit card to use as payment at the time of service instead of requesting reimbursement.

Employees ask common questions regarding HRAs, such as can I withdraw money from my HRA account? Very simply, no. The funds may only be used at the time of service or as a reimbursement for medical services rendered and paid out of pocket.

→ Click here for a full list of HRA eligible expenses. 

HRA Account Rules

HRA rules for employers and employees include some standard HRA rules associated with every HRA account. For example, the business owns the HRA, not the employee. Only the company can put money into the HRA, HRA funds do not earn interest, and the business determines the amount contributed to the HRA. Employees can use HRA money to pay for personal and family medical expenses. The rules for reimbursement from an HRA are found in IRS Publication 502, and any unused money stays with the business. Rollover of funds for employees with an HRA is not guaranteed. Rollover depends on the type of HRA plan and the business’s decision about allowing it or not. 

Some rules differ between HRA plans. For example, Qualified Small Employer Health Reimbursement Arrangement QSEHRA is well-suited for small employers, whereas Individual Coverage HRA ICHRA is suitable for employers of all sizes. Therefore, QSEHRA has some differences from ICHRA. 

→ Deep dive into HRA Account Rules 

Pros and Cons of an HRA

There are always upsides and downsides to consider when deciding which healthcare plan to choose. 

Here are a few HRA account pros and cons.

Pros:

Employees can use it for medical and dental expenses, prescriptions, annual exams, birth control medications, and more.
Employees choose providers and plans.
Some HRA designs (including all of Take Command’s products) allow employees to use their HRA for insurance premiums
Unused funds can roll over at the employer’s discretion.
Tax-advantaged funds for medical expenses 
Some types of HRAs prompt a Special Enrollment Period, meaning it’s easier for employees to sign up for health insurance within 60 days of that change.
If an employee loses their job or quits, they keep their health insurance.

Cons:

Funds stay with the employer if an employee leaves the company. Note: this is actually a pro for employers. 
Employees cannot use it for cosmetic costs such as teeth whitening or other procedures or products deemed unnecessary. Again, this would be considered a pro by most employers.
There may be plan-based employer contribution limits depending on what type of HRA is offered
Provider options may be limited based on the insurance market per geographical region.
In some cases, employees on spouse’s plans cannot get reimbursed for their spouse’s premiums. 
For some types of HRAs, the HRA offer can replace premium tax credits that some individuals receive.
Some HRAs don’t integrate with medical sharing plans or TRICARE, among others.

For a more comprehensive, detailed list of pros and cons, check out our HRA account pros and cons blog.

HRA vs HSA

HRA and HSA plans are often confused but are not the same. So what is HRA vs HSA? A Health Savings Account HSA is a special purpose bank account, an official way of saying an account that holds money that may only be used for one purpose – In this case, approved health care costs. Employees and employers may both contribute to an HSA within IRS  regulations. Also, there are some tax advantages associated with HSA accounts.

A Health Reimbursement Arrangement is an employer-funded account that works as a holding place for funds available to employees to cover approved medical expenses.

Employees may access the funds by requesting a reimbursement. In addition, employers have the option to restrict the rollover of unused funds each year and the ability to choose between plans that offer slightly different levels of reimbursement (e.g., premiums only vs. premiums with medical expenses.)

Take Command 

At Take Command, we embrace the reimbursement health plan model wholeheartedly. Our focus is on a consumer-centric healthcare system, and we believe creating a clear path to health insurance is part of the process. At Take Command, you can access HRA information using our informative website or speaking with us directly. We are here to help you clarify and understand your options!