Medical Related Savings Plans: Understanding Health Reimbursement Arrangements

Employers fund HRA accounts to reimburse employees for eligible medical expenses

Health care costs remain a significant part of household budgets, and many employers now use tax-advantaged benefit accounts to help employees manage these expenses. If you have heard terms like Health Savings Account, Flexible Spending Account, or Health Reimbursement Arrangement, it can be easy to confuse them. While each has unique features, the Health Reimbursement Arrangement, often called an HRA, is distinct in how it is funded, owned, and used. Understanding the current rules for HRAs can help you make the most of this benefit if your employer offers one.

What is an HRA

A Health Reimbursement Arrangement is an employer-funded account used to reimburse employees for qualified medical expenses. Unlike an HSA or FSA, employees do not contribute their own money to an HRA. The employer owns the account and contributes funds according to the plan design. Employees then submit eligible expenses, and the employer reimburses them from the account.

Qualified medical expenses are defined in Section 213 of the Internal Revenue Code and can include a wide range of costs such as health insurance premiums, copayments, deductibles, dental and vision expenses, and certain long-term care premiums. Some HRAs can also reimburse mileage or travel costs related to receiving medical care. Employers can choose to narrow the list of eligible expenses, so it is important to review your specific plan’s documentation.

The key difference from other health-related accounts is that employees only receive funds as reimbursement for expenses they actually incur. The employer decides how much to contribute and may set rules on what qualifies. Funds in an HRA are not invested, and they are not portable in the same way as an HSA. If you change jobs, you cannot take the HRA balance with you unless your employer allows post-employment access.

Types of HRAs in 2025

Several types of HRAs are available today, and the rules for each vary. The most common include:

• Standard HRA offered alongside a traditional group health insurance plan. The employer funds the account to cover certain out-of-pocket expenses.
• Qualified Small Employer HRA (QSEHRA) for small employers with fewer than 50 full-time employees who do not offer group health insurance. This arrangement allows reimbursement of premiums and other medical expenses, subject to annual contribution limits set by the IRS. For 2025, the limit is $6,150 for self-only coverage and $12,450 for family coverage.
• Individual Coverage HRA (ICHRA) available to employers of any size, which can reimburse premiums for individual health insurance coverage purchased on or off the Health Insurance Marketplace. Employers must provide the same terms to employees within the same class and cannot offer both an ICHRA and a traditional group health plan to the same class of employees.
• Excepted Benefit HRA which can reimburse certain limited benefits such as vision, dental, or short-term health insurance premiums. These arrangements have a lower contribution limit, which is $2,100 for 2025.

How an HRA Works

Employers decide how much money to make available in the HRA each year. Employees submit proof of eligible expenses, such as receipts or an Explanation of Benefits from their insurance provider. The employer or plan administrator then reimburses the employee up to the available balance. The reimbursement is not taxable income if it is for qualified expenses.

Some HRAs allow unused balances to roll over into the next plan year, while others have a use-it-or-lose-it rule where unused funds expire at year end. Employers are not required to allow rollover, but many do so to encourage participation and reduce the risk of employees deferring necessary care to avoid losing benefits.

Because the employer owns the account, funds typically do not follow the employee when they leave the company. However, some employers allow former employees, including retirees, to access remaining HRA funds for certain costs such as premiums for retiree health insurance or Medicare supplemental coverage.

Comparing HRAs to HSAs and FSAs

HRAs, HSAs, and FSAs are all tax-advantaged health benefit accounts, but they differ in several important ways:

• Only HRAs are entirely funded by the employer. HSAs and FSAs can include employee contributions.
• HRAs do not require you to have a high-deductible health plan, while HSAs do.
• HSAs are owned by the employee and are portable, while HRAs are owned by the employer and generally not portable.
• FSA funds are typically use-it-or-lose-it, though some plans offer a grace period or small carryover amount. HRA rollover rules vary by employer.

Advantages of an HRA

For employees, HRAs can reduce out-of-pocket health care costs without requiring a salary reduction. Because the funds are employer-provided and tax-free when used for qualified expenses, they effectively increase total compensation. HRAs can also offer flexibility in how funds are applied, especially when the employer allows reimbursement for premiums as well as medical services.

For employers, HRAs provide a tool to manage benefit costs while still supporting employee health needs. They can set the annual contribution level, limit eligible expenses, and choose whether unused funds roll over. HRAs can also help smaller employers provide a meaningful health benefit without offering a full group insurance plan.

Considerations and Limitations

Since HRAs are employer-owned, unused funds generally stay with the employer if you leave the company. This is different from an HSA, which you keep. Additionally, you must follow your employer’s specific rules for eligible expenses and submission deadlines. If you do not submit claims in time, you may lose the reimbursement opportunity.

Employers can choose to reduce the IRS list of qualified expenses, so you should always confirm coverage before incurring large medical costs. For example, your plan might reimburse prescription medications but not over-the-counter drugs without a doctor’s prescription. If your HRA reimburses health insurance premiums, it may do so only for certain types of coverage, such as individual marketplace plans or COBRA continuation coverage.

North Carolina-specific notes

North Carolina follows federal tax treatment for HRA reimbursements, meaning they are not considered taxable income when used for qualified medical expenses. State-licensed insurance agents and benefits advisors can help employers structure HRAs to comply with both federal and state requirements. The NC Department of Insurance provides consumer guidance for employees who are offered HRAs tied to individual health coverage through the marketplace.

Is an HRA Right for You

If your employer offers an HRA, it can be a valuable way to cover medical expenses without using after-tax dollars. It is especially useful if your employer allows rollover of unused funds or reimburses premiums for the type of coverage you already have. However, if you change jobs frequently or prefer to control and invest your own health funds, an HSA may be more appealing. Reviewing your employer’s plan rules is essential to understanding the full benefit and any limitations.

Getting Started with an HRA

If you are eligible for an HRA, request the plan summary and review the list of eligible expenses, the annual contribution amount, and the claim submission process. Keep records of all medical expenses and submit them promptly. If your plan allows reimbursement for premiums, coordinate with your insurance provider to ensure you have the necessary proof of payment.

Employers considering offering an HRA should consult with a benefits advisor to choose the right type of arrangement, set clear plan rules, and ensure compliance with applicable laws. HRAs can be structured to complement existing health insurance offerings or serve as a stand-alone benefit for employees purchasing their own coverage.

When used effectively, an HRA can provide meaningful financial support for health care costs, giving employees more flexibility and employers more control over benefits spending. As with any health benefit, understanding the specific terms of your plan is key to maximizing its value.