If your employer offers a health reimbursement arrangement (HRA), then you have access to a unique health benefit that empowers you to make your own healthcare choices in ways a traditional group health insurance plan doesn’t.
From choosing your own individual health insurance plan to spending your HRA dollars on the qualifying out-of-pocket medical expenses that make sense for you, an HRA gives you the freedom to choose.
One important choice you’ll need to make is whether you want to combine your HRA with other account-based health plans your employer may offer, like a flexible spending account (FSA). When making your decision, there are important regulations to keep in mind to make sure you’re coordinating the two health plans appropriately.
In this article, we’ll go over in more detail how HRAs and FSAs are different, why it can be beneficial to have both, and what regulations you’ll need to keep in mind to coordinate your health spending.
What is a health reimbursement arrangement?
An HRA is a formal health benefit that allows employers to reimburse their employees for the individual insurance premiums and qualifying medical expenses employees purchase with their own money.
Reimbursements made through the HRA are tax-free to the organization and can also be tax-free to you as the employee—you just need to have minimum essential coverage (MEC).
Finally, with an HRA, all contributions are made by the employer, and any unused funds at the end of the year generally stay with the employer.
PeopleKeep offers three types of HRAs:
- Qualified small employer HRA (QSEHRA)
- A simple, controlled-cost alternative to group health insurance for employers with fewer than 50 full-time employees
- Individual coverage HRA (ICHRA)
- A flexible health benefit solution that can be used alone or alongside group health insurance for organizations of all sizes.
- Group coverage HRA (GCHRA)
- Sometimes called an integrated HRA, a GCHRA is a group health supplement to help employees with out-of-pocket expenses
What is a flexible spending account?
Next, let’s talk about FSAs. While the “a” in HRA stands for “arrangement,” the “a” in FSA stands for “account.” That’s because an FSA is a financial account that both employers and employees can contribute money to for future tax-free spending of specific healthcare purchases.
Just like an HRA, an FSA is tied to your employment, which means it won’t be maintained if you stop working for your employer that originally offered it to you.
Depending on the type of FSA you’re being offered (health FSA, limited purpose FSA, or dependent care FSA) the expenses that you’re eligible to purchase with your FSA dollars will vary.
For example, a limited purpose FSA only covers exempted expenses, such as vision and dental care, while a health FSA covers a wider range of IRS-approved medical expenses. A dependent care FSA covers expenses for children under the age of 13.
How do HRAs and FSAs work together?
If your employer is offering you both an HRA and an FSA—great! Using both is an excellent way to maximize your employer’s contributions to your healthcare and save even more on your needed medical expenses.
When using both an HRA and an FSA, you’ll want to keep the following two rules in mind:
- The same expense can’t be reimbursed from both accounts
- Unless otherwise specified in your employer’s plan documents, your full HRA allowance must be used first before you can dip into your FSA
The only HRA where employers can't offer an FSA in addition to their HRA is with a QSEHRA. According to the IRS, a QSEHRA can't be combined with any other kind of group health plan. In this case, an FSA is considered a group plan.
However, if you are using an FSA from a spouse (not one offered from your employer), then you can coordinate it with your QSEHRA. Just make sure you're following the rules listed above to stay compliant.
Coordinating your health spending with your HRA and FSA is a smart way to take advantage of the health benefits your employer is offering, allowing you to get tax-free reimbursements on the qualifying medical expenses you incur for you, your spouse, and your children. By following the guidelines in this article, you’ll be ready to use both benefits like a pro!