how a health reimbursement arrangement hra works
a health reimbursement arrangement is a plan set up by an employer to cover medical expenses for its employees the employer decides how much it will put into the plan and the employee can request reimbursement for actual medical expenses incurred up to that amount all employees in the same class must receive the same hra contribution 2an hra is not an account therefore employees cannot withdraw funds in advance and then use them to pay medical expenses instead they must incur the expense first then have it reimbursed reimbursement at the time of service is possible if the employer provides an hra debit card an employee who uses up all the allocated funds in the hra before year end will have to cover any subsequent health bills out of pocket or with the funds in a flexible spending account fsa also known as a flexible spending arrangement when available or a health savings account hsa for employees who have a high deductible health plan hdhp 34maternity clothes gym membership fees and childcare are among the expenses not covered by a health reimbursement arrangement hra 5types of hrasthere are a few kinds of health reimbursement arrangements a qualified small employer health reimbursement arrangement qsehra is a health coverage subsidy plan for employees working for businesses that employ less than 50 full time workers also known as a small business hra a qsehra can be used to offset health insurance coverage or repay medical expenses that would be otherwise uncovered 6the yearly limits are set by the internal revenue service irs for 2023 a company with a qsehra can reimburse individual employees for up to 5 850 per year and employees that have families for up to 11 800 per year 7 in 2024 the limits change to 6 150 per individual and 12 450 per family 8the money that is reimbursed is tax free for the employees and tax deductible for the employers 6an individual coverage hra ichra is relatively new having only been available since january 2020 previously hras could not be used to pay individual health insurance premiums but as of january 2020 the government allows employers to offer their employees a new type of hra called an individual coverage hra instead of group health insurance 9employees can use these hras to buy their own comprehensive individual health insurance with pretax dollars either on or off the affordable care act s health insurance marketplace individual coverage hras can also reimburse employees for qualified health expenses such as copayments and deductibles 9whether or not your ichra makes you eligible for a premium tax credit to help pay for health insurance coverage under the affordable care act depends on whether your employer s ichra meets minimum standards for so called affordability and whether you choose to opt in or opt out of the coverage 9in addition employers that continue to offer traditional group health insurance can offer excepted benefit hras ebhra to reimburse employees for up to 1 950 a year in qualified medical expenses 10employees can enroll in an excepted benefit hra even if they decline group health insurance coverage but they cannot use the funds to buy comprehensive health insurance they can however use the funds to pay for short term health insurance dental and vision insurance premiums and qualified medical expenses 11benefits of health reimbursement arrangementshras can be used to pay for qualified medical expenses which include prescription medications insulin an annual physical exam crutches birth control pills meals paid for while receiving treatment at a medical facility care from a psychologist or psychiatrist substance abuse treatment transportation costs incurred to get medical care and much more 1213employees can also use hras to buy their own comprehensive individual health insurance with pretax dollars through the aforementioned individual coverage hra ichra 12employees can use the money in their hras to cover their spouse s and dependents allowed medical dental and vision costs 12limitations of health reimbursement arrangementsan hra only covers qualified medical and dental expenses according to the internal revenue service irs medical expenses are costs incurred to alleviate or prevent a physical or mental ailment not expenses to maintain general health such as vitamins 14an employer may exclude certain medical expenses even though the expenses are qualified by the irs an employer s list of reimbursable medical expenses will be outlined in its hra plan document for employees the irs issued a statement notifying taxpayers that at home covid 19 tests and personal protective equipment such as face masks and hand sanitizer are eligible medical expenses that can be paid or reimbursed under flexible health spending arrangements health savings accounts and health reimbursement arrangements hras 15can be used to pay for medical and dental expenses such as prescription medications an annual physical exam and birth control pillscan be used to pay for individual health insurance with pretax dollarsreimburses employees after they ve paid for certain medical expenses and insurance premiumscan t be used for costs that aren t deemed necessary such as teeth whitening funeral services or non prescription medication