What Is an HRA and How Does It Work?

A Health Reimbursement Account, also called an HRA or Health Reimbursement Arrangement, is an employer-funded tool to help you pay for certain out-of-pocket medical costs. Your employer puts funds in your HRA, and you draw from it or get reimbursed for out-of-pocket healthcare expenses.

Here are key features to keep in mind when deciding whether an HRA is right for you:

You May Need to Pay and Get Reimbursed Later

You may have to pay for your healthcare and get reimbursed later from your HRA. This can be problematic for those with little cash to spare. Or your employer could supply you with a debit card you can use to pay your healthcare providers directly from the HRA.

Your HRA Is Not Really an Account

Even though HRAs are commonly known as Healthcare Reimbursement Accounts, the more accurate name for them is Healthcare Reimbursement Arrangements. That is because an HRA is technically not an account and the money in it cannot earn interest or be invested. It is simply an amount your employer agrees to make available to you for eligible out-of-pocket medical expenses.

HRAs Are Always 100% Employer Funded

Unlike Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs), you cannot contribute to an HRA. HRAs are funded exclusively by a company or organization, although not all employers offer HRAs. Check with your HR department to see if one is an option for you.

You Do Not Own the Money in Your HRA

Even though the money in your HRA will be available to you, it is 100% funded, owned, and managed by your employer.

You Do Not Pay Taxes on HRA Money

Because you do not put any of your own earnings into an HRA, you do not pay taxes on the money. HRAs offer extra money beyond your pay, with certain rules and conditions attached i.e., the money must be used for approved medical expenses.

Do HRA Funds Rollover?

Your employer can decide whether to allow you to carry over unused funds from one year to the next. They may allow you to carry over the full amount, a portion, or may require that you forfeit any unused funds at the end of the year.

You Cannot Cash Out Your HRA

You can never withdraw HRA money for an unapproved use.

What Kind of Things Can Be Reimbursed Through an HRA?

Most HRAs will reimburse for deductibles, coinsurance, and copays. Other types of expenses may also be eligible for reimbursement. Although the IRS determines the overall rules for HRA-eligible expenses, your employer can choose which IRS-approved expenses to allow. Check with your employer for the full list of eligible expenses for your HRA.

Some expenses deemed eligible by the IRS that may be eligible through your HRA include:¹

• Acupuncture
• Ambulances
• Bandages
• Birth control pills
• Chiropractor visits
• Cold and flu medicine (over the counter)
• Condoms
• Contraceptive drugs and medicine
• Deductibles
• Dental treatment (for non-cosmetic purposes)
• Eye exams
• Eyeglasses (over-the-counter and prescription)
• Eye surgery (vision correction)
• Feminine hygiene products
• Fertility enhancement
• First aid kits
• Flu shots
• Guide dog (or other service animal)
• Hand sanitizer
• Hearing aids and batteries
• Incontinence supplies
• Infertility treatments
• Insulin, testing materials and supplies
• Insurance premiums
• Intellectually and developmentally disabled housing
• Laboratory fees
• Laser eye surgery
• Medications
• Nursing services
• OB/GYB fees
• Optometrist fees
• Orthodontia
• Orthotics
• Oxygen (necessary for a medical condition)
• Physical therapy
• Pregnancy tests (over the counter)
• Psychiatric care
• Psychoanalysis
• Smoking cessation programs (and prescriptions)
• Speech therapy
• Spermicides
• Substance abuse treatment (drug or alcohol)
• Sunscreen with SPF 15+
• Vaccinations
• Vasectomy
• Weight-loss programs and drugs
• X-rays

There Is No Set Maximum Contribution for an HRA

Unlike with FSAs or HSAs, there are no rules about how much an employer can contribute to an HRA. The amount made available to you for eligible expenses is completely at the discretion of your employer.

An HRA Can Be Used With an FSA or HSA

You can use an HRA along with an FSA (Flexible Spending Account). When paired, qualified expenses first get paid through the FSA, then once those funds are used, an HRA can kick in for additional qualifying expenses.

The IRS has very specific rules for using HRAs and HSAs (Health Savings Accounts) together, but you may be able to take advantage of both in certain circumstances. Ask your HR department and a tax professional for more information about using HRAs in conjunction with other medical expense accounts.

HRA Benefits Can Sometimes Continue if You Lose Your Job

You may be able to keep your HRA benefits under the federal COBRA law if you lose your job. Check with your employer to learn whether this may be an option for you.

An HRA Can Benefit Both Employees and Employers

An HRA is a good perk for you because it gives you access to extra money to use on eligible expenses. It can also benefit your employer by offering tax deductions and helping them attract and retain employees.

Managing Healthcare Costs with CareCredit

If you are looking for an option to help manage your medical bills, consider healthcare financing with the CareCredit credit card. The CareCredit card can help you pay for the care you want and need and make payments easy to manage.* Apply today and use our Acceptance Locator to find a provider near you that accepts CareCredit. Continue your wellness journey by downloading the CareCredit Mobile App to manage your account, find a provider on the go, and easily access the Well U hub for more great articles, podcasts, and videos.

Our Expert Reviewer

Patty Caballero and her team of consultants together have more than 35 years of health insurance knowledge working for some of the biggest health insurance companies in the US. She has knowledge in building brands and strategic initiatives to help consumers better understand their health benefits.