What is a Health Reimbursement Account (HRA)?

HRAs, were setup to allow employers to contribute to for their employees in conjunction with consumer-directed health plans.  HRAs are not “accounts”. They are typically funded by employers on an as-needed basis, which means that money is available only when there is a need. The funds can be deducted as a business expense when actual distributions are made.  HRAs are employer funds available to reimburse employees for qualified medical expenses. The terms of these arrangements can provide first dollar medical coverage depending on the plan design until the funds are exhausted.   The terms of the HRA arrangement is extremely flexible with employer control.

 The difference between HRAs and Section 125 FSAs is that balances left in the HRA at the end of the plan year can be rollover over into the next year.   The other main difference between HRAs and FSAs is that FSAs are funded with employee contributions – the employee decides how to have deducted on a pre-tax basis to pay for eligible expenses.  HRAs can only be funded with employer dollars. 

The critical difference between HRAs and HSAs is that HRAs do not have any legislative plan design restrictions whereas HSAs have parameters within the plan design that must be followed to qualify as a Health Savings Account.