What Is a Health Reimbursement Arrangement (HRA)?

What Is a Health Reimbursement Arrangement (HRA)?

A Health Reimbursement Arrangement (HRA) is an employer-funded benefit that reimburses employees for qualified medical expenses. Unlike a Health Savings Account (HSA), you do not contribute to an HRA — your employer funds it. Used strategically, it can significantly reduce your out-of-pocket healthcare costs.

How an HRA Works

Your employer sets aside a specific amount of money in an HRA each year. When you have an eligible medical expense — a doctor visit copay, prescription medication, a deductible payment — you submit documentation to your employer or a third-party administrator. You get reimbursed up to the amount in your HRA.

Key characteristics of HRAs:

• Funded entirely by the employer — employees do not contribute
• Reimbursements are tax-free to the employee
• Only available through an employer (self-employed individuals cannot use traditional HRAs)
• Unused funds may or may not roll over depending on the plan design — your employer decides
• Generally cannot be used to pay health insurance premiums through a traditional HRA

Types of HRAs

There are several types, and the rules differ between them:

Integrated HRA (Group Coverage HRA): The most common type. Must be paired with a group health insurance plan. Used to reimburse qualified medical expenses like deductibles, copays, and coinsurance.

Qualified Small Employer HRA (QSEHRA): For small employers with fewer than 50 full-time employees who do not offer group health insurance. Can reimburse individual health insurance premiums and medical expenses. Annual contribution limits apply (set by the IRS each year).

Individual Coverage HRA (ICHRA): Introduced in 2020. Can be offered by employers of any size. Reimburses employees for individual health insurance premiums and medical expenses. Unlike QSEHRA, there is no cap on employer contributions. Employees must be enrolled in individual coverage to use it.

Excepted Benefit HRA: A small HRA that can be offered alongside traditional group coverage for limited benefits — dental, vision, or short-term expenses — up to a small annual limit.

HRA vs. HSA vs. FSA

These three accounts are often confused. Here is how they differ:

• HRA: Employer-funded only. Not portable (you lose it if you leave the job, unless the plan allows otherwise). No employee contributions.
• HSA: Must be paired with a High-Deductible Health Plan (HDHP). Employee and employer can both contribute. Portable — the money is yours even if you leave your job. Triple tax advantage (pre-tax contributions, tax-free growth, tax-free withdrawals for qualified expenses).
• FSA: Usually employer-sponsored but employee-funded (pre-tax). Use-it-or-lose-it rule applies (with a small carryover allowed). Not portable.

What Expenses Can an HRA Reimburse?

The IRS defines eligible expenses under Section 213(d). Common examples include:

• Doctor, specialist, and urgent care visits
• Prescription medications
• Dental and vision care (often excluded from medical plans)
• Mental health services
• Lab tests and imaging
• Medical equipment (crutches, wheelchairs)
• Surgery and hospital stays

The specific list depends on your employer’s HRA plan design. Some plans limit reimbursements to certain categories only.

Is an HRA Taxable?

No. Reimbursements from an HRA are not taxable income for the employee, as long as they are used for qualified medical expenses. Your employer also benefits — HRA reimbursements are tax-deductible as a business expense.

Can You Use an HRA and an HSA Together?

In some cases, yes — but it is complex. If you want to contribute to an HSA, the HRA must be designed as an “HSA-compatible” (or “limited purpose”) HRA. An incompatible HRA disqualifies you from making HSA contributions. Check with your HR department or benefits administrator before assuming you can use both.

What Happens to Your HRA When You Leave Your Job?

Traditional HRAs are generally not portable. When you leave an employer, you typically lose access to unused HRA funds. The ICHRA is also employer-specific, though some plans allow continued access through COBRA. Always check your plan documents when changing jobs.

Bottom Line

An HRA is a valuable employer-provided benefit that helps cover out-of-pocket healthcare costs on a tax-free basis. If your employer offers one, understanding how it works — what qualifies for reimbursement, whether funds roll over, and how it interacts with other benefits — lets you get the maximum value from your health coverage package.