A Health Reimbursement Arrangement (HRA) is a great benefit provided by employers to help cover an employee’s qualified healthcare expenses such as premiums and other HRA eligible expenses. This type of plan allows employees to cover out-of-pocket healthcare costs while offering flexibility to employers in designing their benefit programs according to their budget. But unlike Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs), only employers can contribute to HRAs by setting aside funds and determining the HRA eligible expenses according to IRS guidelines.

Benefits of HRAs for Employers

  1. Cost Control: HRAs allow employers to control healthcare costs by setting reimbursement limits and encouraging employees to make informed decisions about their healthcare.
  2. Improved Employee Satisfaction: Offering an HRA can significantly improve employee morale and well-being by reducing their out-of-pocket healthcare expenses.
  3. Tax Advantages: Both employers and employees may benefit from tax savings as HRA funds can be used tax-free for eligible expenses.
  4. Flexibility: Employers can tailor their HRA plans to meet the specific needs of their workforce, including choosing the level of funding and eligible expenses.

How HRA Plan Design Impacts HRA Eligible Expenses

One of the key benefits of HRAs is that employers have a significant degree of control in designing their plan. This flexibility allows them to decide what types of expenses are reimbursable within the boundaries set by the IRS. Employers can choose to cover a broad range of medical, dental, and vision-related expenses or limit reimbursements to more specific categories, such as prescription drugs or preventive care. The plan design plays a crucial role in determining how employees can use their HRA funds.

For example, some employers may allow the HRA to cover high-cost items like surgeries or durable medical equipment, while others may focus on doctor’s visits and preventive services co-pays and prescriptions.  Employers also have the option to include or exclude over-the-counter medications or elective treatments based on their organization’s goals and budget.

Types of HRAs and Their Impact on Reimbursement

There are several types of HRAs available, and the type of HRA an employer offers significantly influences which expenses are eligible for reimbursement. Here’s a breakdown of some of the most common types:

  1. Standard HRA
    A traditional HRA is designed to reimburse employees for a wide range of medical expenses, such as doctor’s visits, prescription medications, and surgeries. Employers have the most flexibility in defining eligible expenses with this type of plan.
  2. Qualified Small Employer HRA (QSEHRA)
    Specifically designed for small businesses with fewer than 50 full-time employees, a QSEHRA allows employers to reimburse employees for both health insurance premiums and out-of-pocket medical expenses. The QSEHRA gives small employers a way to offer health benefits without providing group health insurance.
  3. Individual Coverage HRA (ICHRA)
    The ICHRA allows employers to reimburse employees for individual health insurance premiums and qualified medical expenses. This type of HRA is often used as an alternative to traditional group health insurance, giving employees the freedom to choose their own insurance coverage while also receiving reimbursement for medical expenses.
  4. Retiree HRA
    A Retiree HRA is designed to help former employees cover their healthcare costs during retirement. These plans typically cover premiums for Medicare, Medigap, or other post-retirement healthcare options, along with out-of-pocket medical expenses.
  5. Excepted Benefit HRA (EBHRA)
    This type of HRA is offered alongside traditional group health plans and is limited in its scope. It typically covers excepted benefits, such as vision, dental, or COBRA premiums, and eligible 213d medical expenses. It has an annual contribution limit, which employers can set based on their budget.

HRA Eligible Expenses

The list of HRA-eligible products and services includes various medical, dental, and vision-related expenses. Here are some common categories of eligible expenses, which can vary depending on the plan design:

  • Doctor’s visits and specialist appointments: Payments for office visits, including copayments, coinsurance, and deductibles; services from general practitioners, specialists, and medical clinics.
  • Prescription medications: Prescription drugs, including insulin, and in some cases, necessary over-the-counter medications may also be covered if prescribed by a doctor.
  • Medical equipment: Items like crutches, wheelchairs, and blood pressure monitors, or durable medical equipment prescribed by a healthcare provider.
  • Vision care: Expenses related to eyeglasses, contact lenses, prescription sunglasses, and eye exams. Vision correction procedures like LASIK may also be eligible.
  • Dental care: Routine services, such as cleanings, fillings, and X-rays, and major dental treatments, including crowns, bridges, orthodontics, and dentures.
  • Preventive care: Routine check-ups, vaccinations, and health screenings, and preventive medications for conditions like high cholesterol or hypertension.
  • Medical procedures and surgeries: Medically necessary surgeries and inpatient or outpatient treatments; chronic condition treatments, physical therapy, and rehabilitation services.
  • Mental health services: Therapy, counseling, and other mental health services provided by licensed healthcare professionals.
  • Over-the-counter medications: Some OTC drugs and medications are now covered.

Non-Eligible HRA Expenses

While HRAs cover many essential healthcare services, there are several expenses that typically do not qualify for reimbursement, such as:

  • Cosmetic Procedures: Elective treatments such as Botox or facelifts unless deemed medically necessary.
  • Gym Memberships: These are typically not reimbursable unless prescribed for a specific medical condition by a doctor.
  • Nutritional Supplements or Vitamins:  Are not typically reimbursed unless they meet specific IRS criteria.
  • Medical Expenses Reimbursed through a different source:  Expenses that are reimbursed under a Spouses FSA cannot be reimbursed again through an HRA.

Ready to Maximize Your HRA Benefits?

Flyte HCM is your partner in designing and managing HRAs. Whether you’re an employer looking to customize your HRA plan or an employee wanting to understand eligible expenses better, we have the tools and expertise to help.

Our platform offers a user-friendly interface that enables employees to easily submit and track claims, keep track of medical expenses with the Flyte Benefits App, and ensure compliance with IRS guidelines. Employers can customize their HRA plans to fit the needs of their workforce while benefiting from real-time access to account balances, automated reimbursement processing, and compliance management tools.

A well-communicated and flexible HRA plan helps both employers and employees navigate healthcare expenses more effectively. Contact Flyte HCM today and let us help you manage your healthcare benefits with ease and confidence.