Here are 10 frequently asked questions (10 HRA FAQs) that outline common health reimbursement account rules.
A Health Reimbursement Account (HRA), also known as a health reimbursement arrangement, is an IRS approved, tax advantaged, health benefit plan that reimburses employees for out-of-pocket medical expenses and individual health insurance premiums. The HRA is 100 percent funded by your employer. The terms of these arrangements can provide first dollar medical coverage until the funds are exhausted or insurance coverage kicks in. The contribution amount per employee is set by the employer.
Here's a brief overview of the HRA account rules we'll be covering:
- You might need health insurance to offer an HRA.
- Your business owns the HRA.
- Only your business can put money into the HRA.
- HRA rollover depends on the type of HRA and your business's decision on whether to allow it.
- HRA funds don't earn interest.
- HRAs can reimburse anything in IRS Publication 502.
- Your business determines how much is contributed to the HRA.
- Maximum reimbursement amounts depend on the type of HRA.
- Unused HRA money stays with the company.
- HRA money can be used to pay for family medical expenses.
Now let's dive in.
HRA FAQs - Health Reimbursement Account Rules
1. Do I have to have health insurance to have a health reimbursement account (HRA)?
It depends on the HRA. Some employers offer HRAs to complement a high-deductible health plan (HDHP), but they can be paired with any type of health plan or offered alone. If you offer a Small Business HRA, employees must have minimum essential coverage.
2. Who owns the HRA?
According to IRS rules, the employer.
3. Who can put money in my HRA?
According to IRS rules, HRAs are fully owned and funded by the employer.
4. Does the HRA rollover?
This depends on the type of HRA being used and decisions made by the employer. The Small Business HRA is restricted by federal law from rolling forward annually.
5. Does the money in my HRA earn interest?
Typically, no. Under most HRA plan rules, the accounts aren’t individually owned bank accounts that are eligible to earn interest.
6. What is an eligible health-care expense for an HRA?
Eligible expenses under an HRA plan are defined in IRS Publication 502. They include:
- Health insurance premiums
- Health insurance deductibles
- Coinsurance and copays
- Other medical expenses
Eligible expenses must be incurred by the employee and/or eligible members of the employee’s family, and take place within the benefit plan year.
7. How much can be contributed to my health reimbursement account?
The amount contributed to your HRA is up to your employer. For some HRAs, there are annual limits on contribution.
8. What is the maximum reimbursement amount from my HRA?
The health reimbursement account contribution rules are determined by your employer. Employees are reimbursed up to the full available balance in your HRA.
9. What happens to the money in my HRA if I leave my job or retire?
The unused money stays with the company when an employee terminates employment.
10. Can I use the money in my HRA to pay for my family's medical expenses?
Yes. The money in your HRA can be used to pay for eligible medical expenses of any family member who qualifies as a dependent on your tax return. However, the dependent must be covered by your HRA.