HRAs (Health Reimbursement Arrangements) are employer-based health benefit plans that reimburse employees for various qualified out-of-pocket medical-related expenses. HRA is not health insurance, although it may be considered a form of group health plan. That distinction is important, as will be explained shortly.
In contrast with HSAs (Health Savings Accounts), employers are in control of the account. They set up and own the accounts, determine the contribution limits based on what they wish to offer, make all contributions, and decide whether to allow properties such as rollover of balances into the next year. Since they are employer-based, they do not transfer from job to job. However, they do cover spouses and qualified dependents.
Similarly to HSAs, HRAs are often paired with a high-deductible health insurance plan as complementary components (with HSAs, the high-deductible plan pairing is mandatory).
HRA's can be used to reimburse a qualified medical expense, as defined by Section 213 of the IRS code. Among these uses are health insurance premiums, vision care, dental benefits, and a long list of medical expenses. IRS Publication 502 lists qualified medical and dental expenses, but employers are not obligated to offer the entire list, and thanks to the ACA (Affordable Care Act), they generally have incentive not to. The ACA is forcing some changes in HRAs to stay in compliance.
An amendment to the Public Health Service Act added by the ACA prohibits group health care plans from establishing dollar limits on "essential health benefits," either lifetime or annual limits – and currently HRAs fall under the health care plan definition. The essential health benefits as defined by the ACA are outpatient care, emergency services, hospitalization, maternity care, mental health services, prescription drugs, rehabilitation service, laboratory services, and pediatric services.
By definition, HRAs limit any of these benefits that are included by capping the total amount of the account. However, five types of HRA have been exempted.
- Integrated HRAs – These are linked specifically to an employer-held group health insurance plan (meeting ACA qualifications, of course). If the HRA and health insurance plan are linked and the insurance plan follows the essential benefits policy, it piggybacks into compliance on the back of the plan.
They cannot be linked to individual policies, whether offered through the employer or not – it must be group coverage.
- Flexible HRAs– These are stand-alone policies, not offered with health insurance. They are also known as FSA-HRAs (Flexible Spending Arrangements HRA). They must follow the "five-times" rule – the maximum amount of reimbursement funds available has to be less than five times the HRA's annual value.
- Excluded HRAs – These exclude all the "essential health benefits" and only cover nonessential ones, bypassing the limit issue. Why would you want this? Because insurance premiums are non-essential health benefits – which allows them to be reimbursed.
- Excepted HRAs – If the HRA qualifies as an excepted benefit, covering only auxiliary care areas such as dental or vision care only, it is exempt.
- Retiree HRAs – Programs that apply exclusively to retirees of a company are exempt. An employer may continue to allow access to the HRA after retirement, but it cannot be used to withdraw funds for retirement income.
HRAs are somewhat embattled as employers struggle to comply with the regulations, and some employers are switching to HSA's or alternate arrangements, or dropping the benefit entirely. However, since it is an employee benefit that you did not contribute to, understand how it fits in with your current health insurance and what you would have to change if the benefit is rescinded. Enjoy it while it lasts.