Definition and Examples of a Health Reimbursement Arrangement

A health reimbursement arrangement (HRA) is an account-based health plan employers can offer to employees instead of a traditional group health plan. The employer adds funds to this account. When you have qualified medical expenses such as a coinsurance or copayment, that cost comes out of your HRA until your HRA fund is depleted.1 

• Alternate name: Health Reimbursement Account, Individual Coverage HRA
• Acronym: HRA, ICHRA

With an HRA, your employer funds, owns, and manages the account. This means the employer has more control over the account compared to other health savings accounts (HSAs). The account manager also has options on how to set it up.

For example, some companies allow you to roll over any unused funds from one year to the next, while others don’t. Additionally, the employer also selects which type of medical services are allowed to be reimbursed from the HRA. This means you may notice differences between one company’s health reimbursement account and the next. 

There are no annual minimums or maximums for a regular HRA, so there isn’t a limit to how much money your employer can contribute to the account.2 Additionally, the money can go in all at once as a lump sum, or your employer can make contributions each month. 

How Do Health Reimbursement Arrangements Work?

The rules for using your HRA funds vary from employer to employer. There are also many different design options your employer can choose from.

Here are four common design structures for individual coverage health reimbursement arrangements:4

• HRA pays first: With this type of HRA, you can seek reimbursement right away. The funds can be used to cover 100% of eligible services until it’s depleted.
• You pay first: This type of HRA has a deductible. Until you’ve paid a specific amount out of pocket, you won’t be able to request reimbursement from your HRA funds. 
• Split deductible: With a split deductible, your employer selects a certain percentage of your medical expenses that your HRA can pay. Then you pay the rest. For example, you might pay 25% while the HRA pays the remaining 75%. A 50-50 split is another common HRA option. 
• You pay first, then split: If you have a divided deductible on your HRA, you’ll need to pay an HRA deductible. Then you pay a certain percentage of your medical expenses, and the HRA pays the rest.

The amount you have to pay before you can use your HRA depends on the structure your employer selected. As such, their decisions also impact how much you pay for your medical care.

Here’s an example of how an HRA might work if you have to pay first. Let’s say you get hurt and need to go to the hospital. Your medical bill is $5,000, but your traditional health insurance plan has a $4,000 deductible. You have an HRA with $2,000 in it; however, your employer set up a $500 deductible that you must pay before you can access the funds.

This means you must pay the first $500 of your bill to cover the HRA deductible. This money also counts toward your traditional health insurance deductible.

Once this is paid, your HRA kicks in and you apply all $2,000 toward your health care plan’s deductible. With that payment, you’ve now covered $2,500 of your $4,000 health insurance deductible ($500 out of pocket + $2,000 from the HRA). 

You still have $1,500 remaining before meeting your health insurance deductible ($4,000 - $2,500 = $1,500). You’ll need to pay that out of pocket as well. Once your deductible is met, your health care plan coverage kicks in.

Instead of having to pay your entire $4,000 deductible out of pocket—as you would without an HRA—you only paid a total of $2,000 (the initial $500 for your HRA deductible and the remaining $1,500). In the end, having an HRA saved you money. 

How Do You Use HRA Funds?

The way you access your HRA funds also varies between companies. However, there are three common methods employers can select. 

• Direct reimbursement: With direct reimbursement, you don’t need to do anything to get the money out of your HRA. It goes directly to your medical provider.
• Debit card: Some HRAs are linked to a debit card you can use to pay for qualified medical expenses.
• Reimbursement request: You first pay for the medical expenses, then you request a reimbursement from your HRA.

What Do Health Reimbursement Arrangements Cover?

While the specific terms of your HRA may vary based on what options your employer selected, you can typically use it to cover medical expenses, including:5

• Coinsurance 
• Copays
• Medical plan deductibles
• Medical plan premiums

An excepted benefit HRA can be used to pay for medical care, such as:6

• Vision coverage
• Dental coverage
• Coinsurance
• Copays
• Short-term, limited-duration insurance
• Health care costs not covered by your primary health insurance

While many medical expenses are covered, it’s important to check the details of your plan. For instance, some HRAs don’t allow you to use the funds to cover your copays. 

HRA vs. FSA

Health Reimbursement Arrangements aren’t the only type of health savings account. Flexible spending accounts (FSAs) are also popular. Here are a few differences between them:

The biggest difference between an HRA and an FSA is the amount of control your employer has over the account. With an FSA, you own the account and can add money to it with pretax dollars from your paycheck. Although employers can also contribute on your behalf, the maximum contribution is $2,850 as of 2022.7 With an HRA, the account belongs to your employer, and you can’t contribute to it.

Since your employer selects all the details of your company’s HRA plan, it’s important you read the documentation to make sure you understand how it works. You should receive a detailed letter 90 days before the start of the plan year, giving you plenty of time to sign up during the open enrollment period.8 

If you miss the deadline, you can sign up during the next open enrollment. You can only sign up outside of this window if you experience a qualifying life event (such as getting married or having a baby), or when you first join a company.9