Medical-Related Savings Plans: What is a Health Reimbursement Account?
Employers reimburse employee HRA accounts for medical expenses incurred by the employee
When it comes to savings plans especially for medical expenses, you may feel like you've fallen into a big bowl of vegetable soup. There's the HSA, the FSA, and finally the HRA, or the Health Reimbursement Account/Arrangement.
What Is an HRA?
An HRA is a savings plan used by employees for health insurance premiums and out-of-pocket medical costs that are then reimbursed by the employer. Keep in mind that this plan differs from both the FSA and the HSA in that employers reimburse only those expenses that the employee incurs.
Eligible medical expenses are found in IRS Section 213 of the Internal Revenue Code and may include premiums for long-term care as well as travel expenses related to medical treatment. Individual employers are allowed to reduce the list of qualified expenses.
If your HRA contains unused money at the end of the year, it may or may not roll over to the next year, depending on the type of account. That being said, employers can also let employees use the money in their account even when they've retired.
What Does an HRA Do?
HRA accounts provide employers and employees with greater control over the ways in which money set aside for medical costs is used. More of the money in the account can pay for a low-deductible health insurance premium, for instance. Alternatively, some funds can be set aside for a high-deductible plan while most can be earmarked for out-of-pocket costs.
Because the funds in HRAs are not invested, you can't roll them over from one year to the next. In addition, the account is owned entirely by the employer rather than the employee, and there is no limit to the amount that the employer can contribute.
Is an HRA a Good Choice for You?
The HRA is a good choice for employees wanting greater control over the ways in which their medical funds are spent. They can also be more beneficial than contributory health insurance premiums or direct out-of-pocket payments because the employer is paying the cost of the account.
Where Can You Get an HRA?
HRAs are usually provided by employers, but there is also a small business HRA available for the self-employed. The specific terms for the latter are a bit different from those sponsored by employers.