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A health reimbursement arrangement (HRA), also known as a health reimbursement account, is a health care arrangement in which employers reimburse employees for eligible medical expenses that are not covered by their group health plans. HRAs work somewhat similarly to health savings accounts (HSAs), and come with similar tax advantages — HRA reimbursements are fully tax deductible for employers. Unlike HSAs, however, HRA funds come entirely from employer contributions, without contributions from the employee.
HRAs are intended to reduce the costs of out-of-pocket medical expenses by providing financial reimbursement for a wide variety of eligible health care expenses, including medical, dental, vision, insurance, and medication costs. To qualify for an HRA, you must be enrolled in a high-deductible health plan and not enrolled in Medicare or other health care plans without a high deductible. An HRA can be used in collaboration with a flexible spending account (FSA), although the employer, not the employee, chooses which of the two will be the primary plan. Unused HRA funds at the end of a plan year may roll over to the next year if the employer so chooses.
The Affordable Care Act previously established four different types of HRA, but changes implemented in 2020 reduced that number to three:
Qualified small employer HRAs (QSEHRAs) - Available to employers with fewer than 50 full-time workers who do not offer group health benefits.
Individual coverage HRAs (ICHRAs) - Available to employers of any size. Employers can segment workers into a variety of categories (“full-time” and “part-time,” for instance) and offer either an ICHRA or a group health plan to each segment.
Excepted benefit HRAs (EBHRAs) - Available to employers of any size. EBHRAs must be offered along with a group health plan. Employees have the option of enrolling in one or both.