BASIC HRA
Frequently asked Questions

What is an HRA?

HRAs are individual Health Reimbursement Arrangements that employers can establish to pay employees’ medical expenses.

Who is eligible to set up and contribute to an HRA?

HRAs must be set up by an employer on behalf of its employees (self-employed individuals are not eligible for an HRA), and only the employer can contribute to an HRA.

Who controls the use of the funds in an HRA?

Employers decide how much money to put in an HRA, and employees can withdraw HRA funds for expenses allowed under the employer’s HRA plan documents.

How much can be contributed to an HRA?

There is no limit on the amount of money an employer may contribute to an HRA.

What are the federal tax benefits of HRAs?

Employer contributions to an HRA are not treated as taxable income to the employee, and employees can spend the funds tax-free. In addition, employers are entitled to deduct the amount of their contribution.

Can HRA funds be used to pay health insurance premiums?

IRS rules allow use of HRA funds for health insurance premiums, long-term care coverage, and qualified medical expenses not covered under another health plan, but it is up to the individual employers to decide whether their employees can use the funds for these purposes.

Can HRA funds be used to pay health expenses incurred by a spouse or dependent?

Under IRS rules, employers have the option of allowing employees to use an  HRA for expenses of spouses and dependents of current and former employees

What happens if there is money left in an HRA at the end of the year?

IRS rules allow employers to determine whether employees can carry over all or a portion of unused HRA funds from year to year. Employers are not allowed to “refund” any part of an HRA balance to employees.

Can HRAs be offered in conjunction with a health insurance plan?

HRAs often are established with a high-deductible health plan for employees. However, they can be paired with any type of health plan or used as a stand-alone account. In addition, HRAs can be offered in conjunction with a health flexible spending arrangement.

What kinds of expenses can be paid with HRAs?

The IRS allows HRA funds to be used for any item that qualifies as a medical expenses under the Internal Revenue Code (except long-term care services). However, it is up to the employers to determine whether employees can use an HRA for any of these items or only for medical expenses covered under the employer’s health benefit plan.

When did HRAs first become available?

In 2000, a small number of insurers began offering HRAs. Large employers began introducing HRAs in 2001, and as they became more prevalent after June 2002, when the IRS issued a ruling to clarify their treatment in the tax code.