Health Reimbursement Arrangements (HRAs) have gained significant attention as a versatile and flexible option for employer-provided healthcare benefits. Whether you’re an employee seeking to understand how HRAs work or an employer evaluating the best benefits package for your team, this blog post will provide you with a comprehensive overview of HRAs, answering frequently asked questions along the way.

What can you use your HRA for?

HRAs are designed to assist employees in covering various medical expenses. These expenses can include but are not limited to:

  1. Medical Services: HRAs can be used to cover costs associated with doctor visits, medical tests, surgeries, and other healthcare services.
  2. Prescription Medications: Expenses related to prescription drugs and medications can be reimbursed through an HRA.
  3. Dental and Vision Care: Employees can use their HRA funds for dental check-ups, cleanings, orthodontics, vision exams, and corrective eyewear.
  4. Medical Supplies: HRA funds can be utilized to purchase medical supplies such as crutches, bandages, and other necessary items.
  5. Mental Health Services: Expenses related to mental health treatment, therapy sessions, and counseling may also be eligible for reimbursement.

What is an example of an HRA?

Imagine you work for Company XYZ, which offers an HRA as part of its benefits package. At the beginning of the year, Company XYZ contributes $1,000 to your HRA account. Throughout the year, you incur medical expenses, including doctor visits, prescription medications, and vision exams, totaling $800. You can submit these expenses for reimbursement from your HRA account, and the company will provide you with $800 to cover these costs. The remaining $200 will roll over to the next year, contributing to your future healthcare expenses.

Is HRA or HSA better?

HRAs and Health Savings Accounts (HSAs) are both popular options for managing healthcare expenses, but they have distinct differences:

HRA (Health Reimbursement Arrangement):

  • Funded by Employer: HRAs are funded solely by the employer, and employees can use the provided funds for eligible medical expenses.
  • No Contribution Limit: There is no annual contribution limit set for HRAs by the IRS, which means employers can offer generous benefit amounts.
  • No Portability: HRAs are tied to the employer, and if an employee leaves the company, they typically cannot take the HRA funds with them.

HSA (Health Savings Account):

  • Funded by Employee and/or Employer: HSAs are funded by both the employee and, optionally, the employer. Employees can contribute pre-tax dollars to their HSA.
  • Contribution Limits: HSAs have annual contribution limits set by the IRS. These limits vary based on whether you have individual or family coverage.
  • Portability: HSAs are portable, meaning employees can take their HSA funds with them when changing jobs.

Deciding between an HRA and HSA depends on factors such as your healthcare needs, financial situation, and employer offerings.

In conclusion, Health Reimbursement Arrangements (HRAs) are a valuable tool that offers employees flexibility in managing their healthcare expenses. From medical services to prescription medications, HRAs can be used for a wide range of eligible medical costs. When comparing HRAs to HSAs, it’s important to consider the source of funding, contribution limits, and portability to make an informed decision that aligns with your healthcare and financial goals. As HRAs continue to gain prominence, they stand as a versatile option in the realm of employee benefits.