Health Reimbursement Arrangements

Health Reimbursement Arrangements or HRA is a medical reimbursement plan paid for by the employer without employee contributions. The employer determines the maximum deduction amount per employee which remains consistent for all employees. The employer reimburses the employees a set amount for qualified medical expenses. Any unused portion of funds established by the business are carried forward to the next coverage period.

HRA reimbursements are provided to:

  • Current employees
  • Former employees including retired and terminated
  • Spouses and dependents of current, former and deceased employees

How is an HRA different from an FSA?

Both plans reimburse the employee for qualifying medical expenses following proof of said expenses and extend to employees, spouses and dependents. However in an HRA plan the employer, not the employee, provides the funds for reimbursement, and provides those funds based on a designated maximum amount per employee.

What happens to unused funds at the end of the plan year?

With an HRA plan, funds left over at the end of the year can be carried over to the following plan year unlike with FSA plans.

What if an employee is terminated or leaves the organization?

If an employee is terminated or quits/retires, funds must continue to be dispersed until the funds are completely used up. This only applies to qualifying medical expenses and the employer may elect to apply an administrative fee in these cases.

What are considered Qualified Medical Expenses for an HRA plan?

The guidelines for what expenses qualify for an HRA plan are found in IRS code 213(d). This includes coverage for premiums for accident or health coverage for current, retired and COBA qualified employees. These medical expenses must be substantiated before approved. HRA funds do not apply to expenses prior to enrollment in the HRA program.

Can a business offer both HRA and FSA plans?

Yes! Under the new IRS ruling an employer may offer both plans. If a medical expense is covered by the HRA plan, funds must be distributed from that plan before the FSA plan is used. However if expenses are not eligible for the HRA then the FSA plan may be used instead. At no time may an employee be reimbursed for an approved medical expenses from both plans at the same time.

American Benefit Services can provide the experience and expertise to help you navigate which plans may be best for your organization. We offer HRA Administration Services including:

  • Plan design and summary plan description
  • Coordination with other benefits already offered by your organization including FSA
  • Critical nondiscrimination testing
  • Claims processing and reimbursement on a monthly basis
  • Reporting – YTD to employer
  • 24/7 web-based participant account information
  • Preparation of the IRS Form 5500 if needed
  • Daily claims processing with checks dispersed daily