HRAs In a Nutshell


What is a Health Reimbursement Arrangement (HRA)?

A Health Reimbursement Arrangement (HRA) is an account maintained by an employer to be used for reimbursement of qualified medical expenses of its employees. A HRA gives you the opportunity to manage your healthcare expenses in partnership with your employer.

The best way to understand HRAs is to contrast them with Health Savings Accounts (HSAs). HSAs must be funded prior to use. HRAs need not be funded prior to use. An employer may simply pay for qualified medical expenses on a pay-as-you-go basis. HSAs belong to the employees and are fully portable. Employees can take the accounts with them when they leave an employer. HRAs belong to the employer, although each employee gets an allocation of dollars each year, and depending on plan design unused dollars may roll over from year to year as long as the employee stays with the company. Typically, employees will lose the money in an HRA if they leave the employer.

The employer may only fund an HRA. Either the employer or the employee may fund an HSA.

How It Works

Employer contribution
Every year your employer establishes a health fund that you can use to help pay for any covered healthcare expenses during the plan year. You pay no taxes on the money, and you manage the fund. If you use all of the money, you pay the rest of your deductible out of your pocket.

Your contribution
After you spend all the funds in your HRA, you pay for any additional healthcare costs up to the amount of your annual deductible.

Your employer and you
After you meet your deductible, your medical plan covers eligible services. Depending on your plan, this means you pay coinsurance for covered services and your plan covers the rest. If you have unused money at the end of the plan year, some plans allow you to apply the balance to the following year. Lastly, because your employer owns the money in the account, if you leave the company, you will typically forfeit the money in the account.
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The HRA in Action
Single and Healthy
Here’s how the HRA might work for you if you're a single, healthy, 25-year-old and you usually see your doctor for your physical exam only. You rarely need prescriptions other than allergy medication.

Your company provided HRA includes a $500 employer-contributed fund, a $1,000 deductible and a medical plan.

Year One
Your initial Fund balance contributed by your employer
$500
You see your doctor for your physical
–$80
A minor accident sends you to the emergency room.
–$200
You fill your regular allergy medicine three times.
–$150
Your fund balance available to roll over to the next year.
$70
Year Two
Your initial Fund balance contributed by your employer
$500
Your initial fund balance from last year
$70
You see your doctor for a sprained knee
–$80
You refill your allergy medicine
–$50
You see your allergist
–$100
You change your allergy medicine
–$30
Your fund balance available to roll over to the next year.
$310

The HRA Advantage

  • Lower premiums than high-deductible plans
  • Providers are paid directly so you don’t need to pay
  • More control and involvement in your healthcare
  • Expenses paid from HRA are tax-free

Receiving Reimbursement Through an HRA

  • You visit any provider of your choice
  • The provider submits the claim to your insurance plan
  • The claim is forwarded to the HRA Plan Administrator for processing
  • You will be notified of the payment needed to cover the eligible expenses, and funds will be removed from your account
  • The Plan Administrator notifies your insurance plan if any balance remains on the claim
  • An EOB is sent to you indicating that the remaining balance is your responsibility

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Copyright ©2008 Star Marketing and Administration, Inc. Information in this newsletter may not be reproduced in whole or in part without permission from Starmark. The articles contained within this newsletter are not a promise of coverage and are not meant to replace professional medical advice or service. Personal health issues should be discussed with your physician. Refer to your Certificate of Insurance or Policy for benefit information.