A health benefit is only as good as how easy it is for your employees to use it. Nothing sours the experience faster than a reimbursement claim denied over a simple paperwork mistake, undermining the entire program. A smooth, predictable process, on the other hand, builds trust and shows your team you genuinely care. This is why understanding the fundamentals of HRA reimbursement rules is so critical. Getting the health reimbursement arrangement rules right from the start prevents common errors and ensures your employees feel confident using the great benefits you provide.

Key Takeaways

• Design a plan that fits your budget: An HRA gives you full control over costs by letting you set the allowance amounts. You also decide on key plan rules, such as whether unused funds can roll over, creating a benefit that aligns perfectly with your financial goals.
• Establish clear rules to stay compliant: To maintain the tax advantages of an HRA, you must have a formal plan with clear processes. This includes requiring proper documentation for every claim and protecting employee privacy to avoid costly penalties.
• Proactive communication is key to success: A smooth HRA program relies on employees knowing exactly how to use it. Providing a simple guide on what expenses qualify, what documents to submit, and how the process works prevents common mistakes and ensures your team values the benefit.

What is a Health Reimbursement Arrangement (HRA)?

A Health Reimbursement Arrangement, or HRA, is an employer-funded plan that reimburses employees for out-of-pocket medical expenses and, in some cases, health insurance premiums. Think of it as a flexible allowance you provide to your team for their healthcare costs. Unlike a traditional group health plan, an HRA gives you more control over your budget while offering your employees more choice. You set the allowance, and your team gets tax-free money back for qualified medical expenses. It’s a win-win: you manage costs effectively, and your team gets a valuable benefit they can tailor to their needs. If you’re exploring ways to build a better benefits package, understanding how HRAs work is a great place to get started.

How Does an HRA Actually Work?

The mechanics of an HRA are pretty straightforward. First, as the employer, you decide on a monthly or annual allowance you want to offer each employee. This is the maximum amount they can be reimbursed for. When an employee has a qualified medical expense, they pay for it upfront. Then, they submit proof of the expense—like a receipt or an explanation of benefits—to you or your HRA administrator. Once the expense is verified, you reimburse the employee with tax-free funds up to their allowance limit. It’s important to remember that HRAs are not pre-funded accounts; you only pay out when an employee makes a valid claim, which gives you better control over your cash flow.

What Makes Up an HRA?

At its core, an HRA is defined by a few key features. First and foremost, it is 100% funded by the employer; employees cannot contribute. This is a major difference from Health Savings Accounts (HSAs). Second, the reimbursements your employees receive for qualified medical expenses are generally not considered taxable income for them. This tax advantage is a huge part of what makes HRAs so appealing for your team. Finally, you, the employer, set the rules. You determine the allowance amount, what expenses are eligible for reimbursement, and whether any unused funds can roll over to the next year. The IRS provides the guidelines, but you have the flexibility to design a plan that fits your company’s goals.

Which Type of HRA Is Right for You?

Not all HRAs are the same, and the right one for you depends on your company’s size and what other benefits you offer. The most common types are the Qualified Small Employer HRA (QSEHRA) and the Individual Coverage HRA (ICHRA). A QSEHRA is designed specifically for small groups with fewer than 50 full-time employees that don’t offer a group health plan. An ICHRA, on the other hand, can be offered by businesses of any size and can be used to reimburse employees for individual health insurance premiums. There are other specialized HRAs as well, but these two offer incredible flexibility for many employers, from small businesses to large groups.

Individual Coverage HRA (ICHRA)

The Individual Coverage HRA (ICHRA) is one of the most flexible options out there, especially for businesses ready to move beyond a one-size-fits-all group plan. With an ICHRA, you can reimburse your employees for their individual health insurance premiums and other qualified medical expenses, as long as they are enrolled in a valid health plan. The real power of an ICHRA is its adaptability; you can offer different reimbursement amounts to different classes of employees, such as salaried versus hourly. This allows you to create a benefits strategy that fits your budget and your team’s structure, making it a powerful tool for companies of all sizes, from growing startups to established large groups seeking better cost control.

Qualified Small Employer HRA (QSEHRA)

If you run a small business, the Qualified Small Employer HRA (QSEHRA) might be the perfect fit. As its name suggests, a QSEHRA is specifically “designed for small businesses with fewer than 50 full-time employees that do not offer a group health plan.” This HRA allows you to reimburse your team for their individual health insurance premiums and other qualified medical expenses, giving them the freedom to choose their own coverage. The IRS sets annual contribution limits, which helps you predict your maximum costs for the year. For many small businesses in Washington, a QSEHRA is an excellent first step into offering health benefits without the complexity of managing a traditional group plan.

Group Coverage HRA (GCHRA)

A Group Coverage HRA (GCHRA), sometimes called an Integrated HRA, works alongside your existing group health insurance plan—it’s an enhancement, not a replacement. GCHRAs are “integrated with traditional group health plans and can be used to reimburse employees for out-of-pocket costs associated with those plans.” Think of it as a way to help your employees cover their deductibles, copayments, and other expenses that your main health plan doesn’t fully cover. By offering a GCHRA, you can make a high-deductible health plan more attractive and affordable for your team, helping them manage their healthcare costs while you keep your premium expenses in check. It’s a strategic way to get more value from your benefits plan, and we can help you figure out if it’s the right move when you’re getting started.

Excepted Benefit HRA (EBHRA)

An Excepted Benefit HRA (EBHRA) is a more specialized tool that allows you to offer limited benefits to your employees, even if they decline your traditional group health plan. EBHRAs are “designed to provide limited benefits” and can be used to reimburse employees for specific types of expenses, such as dental and vision care or short-term disability insurance premiums. Unlike other HRAs, the annual contribution limits are modest, but they provide a great way to offer valuable perks that support your team’s overall well-being. It’s a simple, effective way to round out your benefits package, especially for organizations like non-profits that want to provide meaningful support on a tight budget.

How Do HRAs Compare to Other Health Accounts?

When you’re looking at health benefits, the alphabet soup of acronyms can get confusing. HRAs, FSAs, and HSAs all help employees pay for medical costs, but they work in fundamentally different ways. Understanding these differences is the first step in deciding which approach best suits your business and your team. The key distinctions come down to who funds the account, who owns the money, and what the funds can be used for. Choosing the right one depends on whether you want to offer a traditional group plan or give your employees the flexibility to choose their own coverage while still providing a meaningful benefit.

HRA vs. Flexible Spending Account (FSA)

The biggest difference between an HRA and a Flexible Spending Account (FSA) is that HRA funds can often be used to pay for health insurance premiums, while FSA funds cannot. FSAs are typically paired with a group health plan and are funded by both the employee (through pre-tax payroll deductions) and sometimes the employer. In contrast, HRAs are funded entirely by you, the employer. Another key distinction is what happens to unused funds. FSAs generally have a “use-it-or-lose-it” rule, where employees forfeit leftover money at the end of the year. With an HRA, you decide whether to let the funds roll over, giving you more control over the plan’s design and costs.

HRA vs. Health Savings Account (HSA)

The primary difference between an HRA and a Health Savings Account (HSA) is who contributes to and owns the account. As we’ve covered, HRAs are 100% funded by the employer, and the employer owns the account. An HSA, on the other hand, is an account owned by the employee. Both the employee and the employer can contribute to an HSA, and the funds stay with the employee even if they change jobs. HSAs must be paired with a high-deductible health plan (HDHP), and they function like a personal savings account for medical expenses. An HRA is a reimbursement plan, not a bank account, offering a more direct way for you to cover your team’s healthcare costs.

Understanding the Rules for an Individual Coverage HRA (ICHRA)

The Individual Coverage HRA (ICHRA) offers incredible flexibility for businesses of all sizes, from small businesses to large corporations. But with that flexibility comes a specific set of rules you need to follow to stay compliant. An ICHRA allows you to reimburse employees for their individual health insurance premiums and other medical expenses, tax-free. This model empowers your team to choose the plan that works best for them while giving you a predictable, fixed budget for health benefits. Getting the setup right is crucial, so it’s important to understand the core requirements before you launch your plan.

Requirement for Individual Health Insurance

The most fundamental rule of an ICHRA is that for an employee to receive reimbursements, they must be enrolled in a qualifying individual health insurance plan. This could be a plan they purchase from the ACA marketplace, directly from a private insurance company, or even Medicare. It’s not enough for them to just be eligible for a plan; they must provide proof of actual enrollment. This requirement is central to how an ICHRA works—it’s designed to help employees afford their own coverage, not to replace it. Your role is to offer the funds, and their role is to secure a policy that meets the guidelines.

The “Affordability” Rule

To ensure an ICHRA is a meaningful benefit, the IRS has an “affordability” rule. Your HRA offer is considered affordable if the amount you provide makes the lowest-cost Silver plan on the marketplace cost less than a certain percentage of the employee’s household income. This percentage is adjusted annually by the IRS. For example, for 2025, the threshold is 9.02%. If your contribution meets this standard, your employees generally won’t be eligible for a premium tax credit on the marketplace. Making sure your offer is affordable is a key compliance step, and it’s one of the many details a benefits partner can help you manage.

No Choice Between an ICHRA and a Group Plan

This rule is simple but critical: you cannot offer the same class of employees a choice between a traditional group health plan and an ICHRA. You must offer one or the other. You can, however, offer different benefits to different classes of employees. For instance, you could offer a group plan to your full-time salaried employees and an ICHRA to your part-time hourly employees. This prevents businesses from encouraging less healthy employees to leave the group plan, which helps keep the insurance market stable. Defining your employee classes correctly is an important part of structuring a compliant ICHRA.

Creating a Special Enrollment Period

One of the best features of an ICHRA is that it can be implemented at any time of the year, not just during the fall open enrollment season. When you offer a new ICHRA, it triggers a Special Enrollment Period (SEP) for your employees. This gives them a 60-day window to go out and purchase an individual health insurance plan, even if it’s outside the standard enrollment window. This flexibility makes it much easier to introduce a new health benefit whenever it makes sense for your business, rather than being tied to a rigid calendar. It’s a powerful feature that helps your team get covered right away.

What Are the Rules for HRA Reimbursement?

A Health Reimbursement Arrangement (HRA) offers incredible flexibility for businesses, but that flexibility comes with a set of non-negotiable rules. Think of them as the foundation that keeps your HRA plan stable, compliant, and tax-advantaged. Getting these rules right from the start is the key to a smooth experience for both you and your employees. It prevents compliance headaches, ensures your team gets the full value of their benefits, and protects your business.

The good news is you don’t have to become an expert in IRS tax code overnight. Understanding the core principles is the first step. These rules cover everything from who can contribute and what can be reimbursed to how employee privacy is protected. While they might seem a bit dense at first, they all serve a clear purpose: to ensure the HRA is used for its intended purpose of covering legitimate medical costs. Partnering with a knowledgeable broker can help you get started on the right foot, ensuring your plan is set up correctly from day one.

Staying on the Right Side of the IRS

First and foremost, an HRA must follow specific IRS rules to maintain its tax-free status. The most important rule is that an HRA must be funded solely by the employer—employees cannot contribute. The funds in the HRA can only be used to reimburse employees for qualified medical expenses for themselves, their spouses, and their dependents. Each year, you set a maximum reimbursement amount for your employees. Depending on how you structure your plan, you can also allow unused funds to roll over from one year to the next, which is a great perk for your team. Adhering to these guidelines is essential for your HRA to work as intended.

No Reimbursement for Pre-Enrollment Expenses

One of the most important timing rules to understand is that HRA funds cannot be used for medical expenses that occurred before an employee was officially enrolled in the plan. Think of it like this: the HRA has a specific start date for each person. Any medical service or purchase made before that date isn’t eligible for reimbursement, even if the claim is submitted after enrollment. This rule is in place to maintain the plan’s integrity and ensure that it only covers costs incurred while the employee is an active participant. It’s a straightforward guideline that prevents confusion and ensures everyone is treated consistently under the plan’s formal structure, which is a key part of maintaining compliance.

Funds Cannot Be Paid as Cash

Another critical aspect of an HRA is that the funds are strictly for reimbursement and cannot be paid out as cash. This isn’t an arbitrary rule; it’s what protects the tax-free nature of the benefit. If employees could simply take the allowance as a cash bonus, it would be considered taxable income. The entire point of an HRA is to provide a dedicated, tax-advantaged fund for healthcare costs. By requiring proof of a qualified medical expense before releasing funds, the plan ensures the money is used as intended. This structure is fundamental to how an HRA works and is a core part of setting up a compliant plan that truly supports your team’s health needs. Properly structuring your HRA is the first step to a successful program, and our team can help you get started.

Getting Your HRA Paperwork Right

For an expense to be reimbursed, employees must prove it was a qualified medical expense. This isn’t just a company policy; it’s a core requirement for compliance. Employees need to submit documentation that clearly shows the date of service, the cost, and a description of the product or service. A simple credit card statement usually isn’t enough. If a receipt is missing key information, the claim will likely be denied, which can cause frustration. Establishing a clear process and communicating it to your team helps everyone understand what’s needed for a quick and easy reimbursement. This is where a dedicated account manager can make all the difference.

Keeping Your HRA HIPAA Compliant

Handling employee health information is a serious responsibility. The Health Insurance Portability and Accountability Act (HIPAA) has strict privacy rules about who can see an employee’s personal health information. If you manage your own HRA, you could inadvertently see sensitive details on receipts or explanations of benefits, putting your company at risk of a HIPAA violation. For this reason, it’s strongly recommended that you do not manage your own HRA plan. Using a third-party administrator creates a firewall, ensuring that all claims and documentation are handled by a compliant entity, protecting both your employees’ privacy and your business.

What Are the HRA Contribution Limits?

The amount you can contribute to an HRA depends on the type of plan you offer. For an Individual Coverage HRA (ICHRA), which is often a great fit for large groups, there are no contribution limits. This gives you maximum flexibility to design a benefits package that fits your budget. However, for a Qualified Small Employer HRA (QSEHRA), which is designed for small groups, the IRS sets annual limits. For 2025, the maximum contribution for an individual employee is $6,350, and for an employee with a family, it’s $12,800. These limits can change each year, so it’s important to stay current.

What Expenses Are Eligible for Reimbursement?

One of the most common questions employers and employees have about Health Reimbursement Arrangements (HRAs) is straightforward: What can you actually use the money for? The answer lies in understanding which expenses the IRS considers eligible for reimbursement. Setting clear guidelines from the start helps your team use their benefits confidently and keeps your company compliant. Think of it as creating a simple roadmap for healthcare spending.

The good news is that the list of eligible expenses is quite long and covers many of the out-of-pocket costs your employees regularly face. The key is to distinguish between medical necessities and general wellness or cosmetic items. Communicating these differences clearly will prevent confusion and streamline the reimbursement process. When your employees know exactly what’s covered, they can make informed decisions about their healthcare and get the most value from the HRA you provide. Let’s break down what that means for you and your team.

What Counts as a Qualified Medical Expense?

Your employees can use HRA funds for a wide range of qualified medical expenses that aren’t covered by their health plan. This includes common costs like deductibles, copayments for doctor visits, and coinsurance. It also covers prescriptions, dental treatments like fillings or cleanings, and vision care such as glasses or contact lenses. The list is extensive and is designed to help with the real-world costs of staying healthy. By covering these everyday expenses, an HRA can make a significant difference in your employees’ financial well-being and their ability to access care when they need it.

Can You Reimburse Insurance Premiums?

Whether an HRA can reimburse health insurance premiums is a common point of confusion. The answer is: it depends. The ability to reimburse premiums is determined by the specific structure of your HRA. For example, a Qualified Small Employer HRA (QSEHRA) is specifically designed to reimburse premiums, while other types of HRAs may have restrictions. It’s crucial to know the rules for your plan, as this is an area where compliance matters. Understanding how premiums are handled is a key part of choosing and managing the right HRA for your small group or business.

A Note on Long-Term Care

Long-term care is another area where HRA rules require careful attention. Generally, HRA funds can be used for qualified long-term care services, such as in-home nursing care, as long as they are considered medically necessary. However, the rules for reimbursing long-term care insurance premiums are more specific and often have limitations based on age. This is another one of those areas where compliance is key, and the specifics depend entirely on your plan’s design. Before making any promises to your team, it’s essential to confirm what your HRA allows. Getting clear on these details upfront is part of building a benefit your employees can trust, and it’s where having expert guidance can save you from future headaches.

What Expenses Aren’t Covered by an HRA?

Just as important as knowing what’s covered is understanding what isn’t. Generally, expenses for overall wellness or cosmetic purposes are not eligible for HRA reimbursement. This means things like gym memberships, non-prescription vitamins, or teeth whitening are typically not eligible. The IRS draws a clear line between treatments for a specific medical condition and expenses for general health maintenance. Making sure your team understands this distinction will help prevent denied claims and frustration, ensuring the HRA is used as intended for necessary medical care.

What Proof Do You Need for Reimbursement?

For an employee to get reimbursed, they can’t just say they had a medical expense—they have to prove it. After paying for a qualified medical service or item, the employee must submit a claim with proof of the expense. This usually means providing a receipt, an invoice from the provider, or an Explanation of Benefits (EOB) from the insurance company. This documentation confirms that the expense was for an eligible medical service and that the employee paid for it. Establishing a clear and simple process for submitting these documents is key to a smooth reimbursement experience for everyone.

Avoid These Common Reimbursement Mistakes

A Health Reimbursement Arrangement is a fantastic tool for offering flexible health benefits, but small administrative hiccups can create big headaches. When reimbursement requests get denied or delayed, it causes frustration for your employees and more work for your team. The good news is that most of these issues are entirely preventable. By understanding the common pitfalls and establishing clear processes from the start, you can ensure your HRA runs smoothly for everyone involved.

The key is proactive communication and setting clear expectations. Many reimbursement mistakes stem from simple misunderstandings about what documentation is needed, which expenses qualify, or when claims need to be submitted. If employees don’t have this information readily available, they’re more likely to make errors that slow down the entire process. This not only impacts their ability to get reimbursed quickly but can also create compliance risks for your business if non-qualified expenses are accidentally approved. Taking the time to educate your team and provide them with easy-to-use resources will pay off significantly in the long run. It reduces the administrative burden on your HR staff and builds employee confidence in the benefits you provide. As your dedicated partner, we help you build these processes and communicate them effectively, so you can focus on your business while we handle the details.

Mistake: Submitting Incomplete Paperwork

This is the number one reason claims get held up. For a claim to be approved, an employee needs to provide proof of the medical expense, like an itemized receipt or an Explanation of Benefits (EOB). It must clearly show the patient’s name, the date of service, the type of service, and the cost. A simple credit card statement or a bill that just shows a balance due won’t work. The best way to prevent this is through clear communication. Give your employees a simple checklist of what’s required for every submission and show them examples of correct documentation during your benefits orientation.

Mistake: Missing Key Deadlines

Every HRA plan has firm deadlines for submitting claims. Employees typically have until the end of the plan year to incur expenses, plus a “run-out” period afterward (often 90 days) to submit their claims for that year. If an employee misses this window, they unfortunately forfeit the reimbursement. These deadlines are not flexible, so it’s crucial to communicate them clearly and frequently. Send automated email reminders as the end of the plan year and run-out period approach. Getting started with clear timelines is a key step in a successful rollout, ensuring your team can take full advantage of their benefits without last-minute stress.

Mistake: Filing Inaccurate Claims

An inaccurate claim usually involves submitting an expense that isn’t eligible for reimbursement under your specific HRA plan. While some HRAs cover a wide range of medical costs, others might be more limited to just co-pays and deductibles. Reimbursing a non-qualified expense can lead to compliance issues for your business. To prevent this, provide your employees with a clear, easy-to-understand list of what is and isn’t covered. This simple step empowers them to make informed decisions and reduces the chances of accidental errors. If you or your employees ever have questions about what qualifies, you can find answers on our FAQ page.

Mistake: Keeping Poor Records

Good record-keeping is essential for both you and your employees. For your business, maintaining detailed records of all HRA reimbursements is a must for compliance and potential IRS audits. For your employees, keeping their own copies of receipts and EOBs is the best way to substantiate their claims and resolve any discrepancies that might arise. Encourage your team to create a dedicated digital or physical folder for their medical expenses throughout the year. A streamlined online portal can also make a huge difference, providing a central place for employees to submit claims and for you to manage the program efficiently, ensuring all records are secure and accessible.

Related: For more on this topic, see What is an ICHRA? A Simple Guide for Employers, HRA for Business Owners: Your Options Explained, and HSA vs HRA vs FSA: Which Is Right for Your Team?.

How HRA Reimbursements Affect Taxes

One of the most attractive features of a Health Reimbursement Arrangement (HRA) is the significant tax advantages it offers both you and your employees. Unlike simply giving raises to cover healthcare costs, HRA contributions and reimbursements follow specific tax rules that can save everyone money. For your business, this means every dollar you contribute to your employees’ healthcare can be a tax-deductible expense. It’s a powerful way to offer competitive benefits while managing your bottom line.

For your team, the benefits are just as compelling. When an employee gets reimbursed for a qualified medical expense, that money is generally not considered taxable income. This means they get the full value of the reimbursement without seeing it shrink on their paycheck. Understanding these tax implications is key to maximizing the value of your HRA program. It ensures your company stays compliant and that your employees fully appreciate the health benefit you’re providing. It’s a win-win that makes offering great health coverage more accessible for small groups and large companies alike.

How HRAs Create Tax Savings for Your Business

As a business owner or manager, you’re always looking for ways to offer great benefits without breaking the budget. This is where an HRA truly shines. The contributions you make to your employees’ HRAs are 100% tax-deductible as a business expense. This is similar to how you’d deduct wages or other employee benefit costs. By setting aside funds in an HRA, you’re not only supporting your team’s health but also lowering your company’s taxable income. This direct financial advantage makes HRAs an incredibly efficient way to structure your health benefits package, allowing you to provide more value to your employees for every dollar spent.

Are HRA Reimbursements Taxable for Employees?

For your employees, the tax rules are simple and highly beneficial. When they use their HRA to pay for a qualified medical expense—like a doctor’s visit, prescription, or dental work—the money they get back is typically tax-free. This means the reimbursement doesn’t count as income, so they don’t have to pay federal, state, or payroll taxes on it. It’s a straightforward way to help your team cover their healthcare costs without adding to their tax burden. This tax-free nature makes the benefit feel more tangible and valuable, as every dollar you provide goes directly toward their health and well-being.

What Are the HRA Tax Reporting Requirements?

To secure these tax benefits, you can’t just informally pay back your employees for medical bills. The IRS requires your HRA to be set up as a formal group health plan with proper documentation. This means having a written plan document that outlines the rules, eligibility, and reimbursement limits. Failing to formalize your HRA can lead to serious compliance issues and potential fines. Partnering with an experienced broker ensures your plan is structured correctly from the start, keeping you compliant with both IRS and ACA regulations. If you’re ready to set up a formal plan, we can help you with getting started.

Simple Tips for HRA Record Keeping

Clear and consistent record-keeping is the foundation of a smoothly run HRA program. For your employees, this means holding onto receipts and explanations of benefits (EOBs) to prove their expenses are qualified. Encourage your team to keep organized digital or physical files so they can easily submit claims and get reimbursed without delay. On your end, maintaining accurate records of contributions and reimbursements is essential for tax purposes and compliance. Establishing a clear process for submitting and verifying claims from day one will prevent headaches for everyone and ensure your HRA operates efficiently.

How to Submit an HRA Claim for Reimbursement

Setting up a clear and simple claims process is one of the best things you can do to make your HRA a success. When employees understand how to get reimbursed, they’re more likely to use and appreciate their benefits. A confusing process, on the other hand, leads to frustration for everyone. The good news is that managing HRA claims doesn’t have to be complicated. With the right system and clear communication, you can create a smooth workflow that saves time for your HR team and gives your employees confidence in their health plan. Let’s walk through what a great claims process looks like, from the initial submission to the final reimbursement.

Follow These Steps to Get Reimbursed

The reimbursement journey is straightforward. First, an employee pays for a qualified medical expense out of their own pocket. Think of a doctor’s visit co-pay or a prescription pickup. After they’ve paid, they need to submit a claim to you or your plan administrator for reimbursement. This claim must include proof of the expense and payment. Once you receive the claim, you’ll review it to confirm it’s an eligible expense under your HRA plan rules. If everything checks out, you reimburse the employee for the approved amount directly from the HRA funds. This simple loop—incur, submit, review, reimburse—is the core of how every HRA operates.

Understanding Reimbursement Timelines

A crucial part of managing an HRA is understanding the reimbursement timeline. Every plan has firm deadlines, including a period for incurring expenses and a separate “run-out” period for submitting the paperwork. Employees typically have until the end of the plan year to incur costs, plus an additional window—often 90 days—to submit their claims for that year. If an employee misses this deadline, they forfeit the reimbursement, which can lead to frustration. To prevent this, it’s essential to communicate these dates clearly and frequently. Sending automated reminders as the plan year and run-out period approach helps ensure your team can take full advantage of their benefits without any last-minute stress. Establishing a clear process for this is a key part of getting started on the right foot.

Simplify Your Claims with Digital Tools

Gone are the days of paper forms and manual tracking. Modern technology solutions can completely streamline your HRA administration and give your employees a much better experience. Digital platforms allow your team to submit claims online or through a mobile app, often just by snapping a photo of a receipt. This makes the process faster, more accurate, and far more user-friendly than shuffling paperwork. For your administrative team, these tools provide a central dashboard to review claims, track reimbursements, and maintain compliance records effortlessly. When you get started with us, we help you implement these systems to make managing your HRA a breeze.

A Quick Documentation Checklist

To keep the reimbursement process moving smoothly, employees need to provide the right documentation. A claim without proper proof can’t be approved, so it’s helpful to give your team a clear checklist. To ensure their claims are valid, employees typically need to submit proof that shows the name of the provider or store, the date of service, a description of the product or service, and the amount they paid. An itemized receipt, an invoice from a provider, or an Explanation of Benefits (EOB) from an insurance carrier usually contains all the necessary details. A simple credit card receipt often isn’t enough because it doesn’t detail what was purchased.

Our Top Tips for a Smooth Reimbursement

Clear communication is the key to preventing most reimbursement issues. Before your HRA plan even launches, make sure employees know what qualifies as an eligible expense and what documentation they’ll need to submit. Maintaining accurate records is just as important, as it ensures you can substantiate every claim and avoid delays. If you find your team is consistently making the same mistakes, it might be a sign that your guidelines need to be clearer. As your dedicated account manager, we can help you create easy-to-understand communication materials and establish a process that works for your unique team, minimizing headaches for everyone involved.

Can You Combine an HRA with an HSA?

HRAs and HSAs are both powerful tools for managing healthcare costs, so it’s natural to wonder if you can offer them together. The short answer is yes, but it comes with some very important rules. Combining these accounts can give your employees incredible flexibility, but it requires a specific type of HRA design to stay compliant. A standard, general-purpose HRA will disqualify an employee from contributing to an HSA. Understanding these distinctions is critical to building a benefits package that works as intended without creating tax headaches for your team. It’s a strategic choice that, when made correctly, can significantly enhance your benefits offering.

Rules for Contributing to an HSA with an HRA

The main rule to understand is that to contribute to a Health Savings Account (HSA), an employee must be enrolled in a High-Deductible Health Plan (HDHP) and have no other health coverage that pays for medical expenses before the deductible is met. A standard HRA that reimburses a wide range of medical costs is considered “disqualifying coverage” by the IRS. This means an employee covered by a general-purpose HRA cannot legally contribute to an HSA. This rule also applies if their spouse has a general-purpose HRA or FSA through their own employer. However, certain types of “HSA-compatible” HRAs, like a Limited-Purpose HRA (which only covers dental and vision) or a Post-Deductible HRA, can be paired with an HSA. Structuring this correctly is key, and it’s where expert guidance can make all the difference.

Avoiding Double-Dipping on Expenses

Even when an HRA and HSA are properly paired, there’s a strict rule against “double-dipping.” This means an employee cannot use funds from both accounts to pay for the same medical expense. For example, they can’t get reimbursed for a prescription from their HRA and then also pay for that same prescription with their HSA debit card. The IRS strictly prohibits using two tax-advantaged accounts to cover a single expense. Clear communication is essential to help your employees understand this rule. Providing simple guidelines and maintaining good records ensures that everyone uses their benefits correctly and avoids potential compliance issues. If you have questions about setting up these guidelines, our FAQ page is a great resource.

How to Effectively Manage Your HRA Program

Setting up an HRA is a fantastic first step, but the real value for your business and your employees comes from managing it well. A well-run program isn’t just about processing reimbursements; it’s about creating a seamless experience that makes your team feel supported and valued. When managed effectively, your HRA can become a cornerstone of your benefits package, helping you attract and retain top talent. The goal is to build a system that is clear, compliant, and consistently meeting the needs of your employees without creating an administrative burden for your team. By focusing on a few key areas, you can ensure your HRA program runs smoothly and delivers on its promise. Here’s how to get it right.

Start with Clear Procedures

The foundation of a good HRA program is clarity. From day one, your employees should know exactly how to submit a claim, what documentation they need, and when they can expect to be reimbursed. Create a simple, step-by-step guide that walks them through the process. This eliminates guesswork and reduces the number of questions your HR team has to field. When you get started with an HRA, establishing these clear procedures is one of the most important things you can do. It sets the tone for a benefit that feels helpful and accessible, not confusing and bureaucratic. A straightforward system empowers employees to take full advantage of their health benefits.

Build a Simple Communication Plan

An HRA is only valuable if your employees understand it. Clear communication is essential to ensure your team appreciates their new benefit. Don’t just send one email and call it a day. Develop a communication plan that includes an initial announcement, a detailed FAQ document they can reference anytime, and maybe even a short information session to answer questions live. The goal is to proactively address common questions about what’s covered, how to submit claims, and key deadlines. By making information easy to find and digest, you show your team that you want them to use and benefit from the program. You can even check out our own FAQ page for ideas on how to structure yours.

Simple Ways to Monitor for Compliance

Staying on the right side of IRS and HIPAA regulations is non-negotiable when managing an HRA. These rules can be complex and change over time, so ensuring HRA compliance is crucial to avoid potential penalties and complications. This involves making sure your plan documents are up to date, reimbursements are only for qualified medical expenses, and employee privacy is protected at all times. This is where having an expert in your corner makes a huge difference. A dedicated partner can help you stay current on regulations, so you can focus on your business. Understanding why to choose us means knowing you have a team dedicated to keeping your benefits program compliant and effective.

Set a Schedule to Review Your Program

A “set it and forget it” approach doesn’t work for benefits. You should regularly review your HRA program—at least annually—to make sure it’s still working for your company and your employees. Ask important questions: Is the allowance amount still competitive and adequate? Are employees using the benefit? Does it align with your overall business goals? This ongoing assessment allows you to make thoughtful adjustments that keep the program relevant and valuable. An effective review helps you adapt to the changing needs of your team and ensures your investment in their health continues to pay off. Our expert team can partner with you to conduct these reviews and refine your benefits strategy over time.

Partnering with a Broker for HRA Administration

While the flexibility of an HRA is a major advantage, the administrative and compliance responsibilities can feel overwhelming. You have a business to run, and becoming an expert in IRS regulations and HIPAA privacy rules probably isn’t on your to-do list. This is where a great partner comes in. Partnering with a knowledgeable broker can help you get started on the right foot, ensuring your plan is set up correctly from day one. An experienced broker handles the heavy lifting—from drafting compliant plan documents to managing the day-to-day claims process—so you can offer a fantastic benefit without the administrative headache.

How WHIA Helps Washington Businesses

At WHIA, we believe a well-run program isn’t just about processing reimbursements; it’s about creating a seamless experience that makes your team feel supported and valued. We act as an extension of your team, providing dedicated support so your employees have a real person to turn to with questions—not a frustrating call center. We help you design and implement an HRA that aligns with your goals, communicate the benefits clearly to your team, and manage the ongoing administration. Our goal is to make your benefits program a genuine asset to your business, helping you attract and retain the talent you need to thrive.

Rules for Business Owner Participation

A common question we hear is whether business owners can participate in their own company’s HRA. The answer depends entirely on your business’s legal structure. For C-corporations, owners who are also W-2 employees can generally participate just like any other employee. However, for S-corporations, partnerships, and sole proprietorships, the rules are different. Owners in these structures are typically not considered employees and are therefore ineligible to participate. It’s also important to remember a core rule of all HRAs: the plan must be funded solely by the employer—employees cannot contribute. Getting owner participation right is critical for compliance, so it’s always best to confirm your eligibility when setting up your plan.

How HRA Funds Are Held and Invested

It’s a common misconception that an HRA is a bank account where funds are set aside for each employee. In reality, an HRA is a reimbursement arrangement, not a funded account. This means you, the employer, hold onto the funds until an employee submits a valid claim. You only pay out money when an approved expense is processed, which is a major advantage for your company’s cash flow. The funds in the HRA can only be used to reimburse employees for qualified medical expenses for themselves, their spouses, and their dependents. Because it’s not a bank account, the money is not invested and does not earn interest for the employee, distinguishing it from accounts like an HSA.

Clearing Up Common HRA Misconceptions

Health Reimbursement Arrangements are a flexible and powerful tool for offering employee benefits, but they often come with a cloud of confusion. Many business owners aren’t sure what’s true and what’s just a myth. Let’s clear the air by tackling some of the most common misconceptions about how HRAs actually work. Understanding these points will help you design a plan that truly fits your company and supports your team.

Myth vs. Fact: Reimbursement Timing

The Myth: Employees always have to pay for medical expenses out-of-pocket and then wait to be reimbursed.

The Fact: While it’s common for employees to pay first and submit a claim, it’s not the only option. Depending on the plan design, some HRAs allow for direct payments to medical providers. This can be a huge relief for employees, as it removes the stress of waiting for a reimbursement to hit their bank account. Offering this feature can make your benefits package much more attractive and supportive, showing your team that you’re mindful of their financial well-being.

Myth vs. Fact: Fund Portability

The Myth: When an employee leaves the company, they can take their unused HRA funds with them.

The Fact: This is one of the biggest distinctions between an HRA and a Health Savings Account (HSA). HRA funds are owned by the employer, so they are generally not portable. If an employee leaves their job, any money left in their HRA typically reverts back to the company. While some employers might set up rules to allow former employees to use remaining funds for a short period, this isn’t standard. It’s crucial to communicate this clearly to your staff so they know what to expect.

Myth vs. Fact: Rollover Rules

The Myth: HRA funds are always “use it or lose it,” disappearing at the end of the year.

The Fact: Whether or not HRA funds roll over is entirely up to you, the employer. You have the flexibility to design the plan to meet your company’s goals. You can choose a “use it or lose it” approach, or you can allow employees to carry over a portion—or even all—of their unused funds into the next year. Allowing rollovers can encourage employees to be more thoughtful about their healthcare spending and provides a valuable long-term benefit.

Myth vs. Fact: Employer Control

The Myth: Employees have total control over how much money goes into their HRA and what it can be used for.

The Fact: As the employer, you are in the driver’s seat. You decide the annual contribution amount for your employees and define which specific expenses are eligible for reimbursement, as long as they fall under the IRS’s list of qualified medical expenses. This control allows you to create a benefits plan that aligns with your budget and company culture. Partnering with an expert can help you structure an HRA that gives you this control while still providing meaningful support for your employees.

Myth vs. Fact: Vesting Schedules

The Myth: Employees automatically own all contributions made to their Health Reimbursement Arrangement (HRA) as soon as they are deposited.

The Fact: Unlike a Health Savings Account (HSA), HRA funds are owned by the employer, not the employee. Because of this, employers can set up a “vesting schedule,” which means an employee must work for a specific period before they gain full access to the HRA funds. This can be a useful tool for encouraging employee retention. For example, you might require an employee to be with the company for one year before they can use their HRA. Understanding the rules around fund ownership and access is a critical part of designing a plan that works for your business and is clearly communicated to your team.

Myth vs. Fact: What Happens if an Employee Passes Away

The Myth: If an employee with an HRA passes away, their remaining funds can be paid out as a cash death benefit to their estate.

The Fact: HRA funds cannot be paid out as a cash death benefit. However, the plan can be structured to allow any remaining funds to be used for qualified medical expenses incurred by the employee’s surviving spouse and dependents. These expenses can be reimbursed until the funds are used up or the plan year ends, depending on your plan’s specific rules. If there are no surviving family members eligible to use the funds, the money is forfeited and returns to the company. This is an important distinction for employees to understand as they do their own financial planning.

Related Articles

• HRA for Dummies: A Simple Guide for Employers
• Top 7 HRA Questions and Answers for Employees
• How Does an HRA Work? A Step-by-Step Explanation

Frequently Asked Questions

What’s the real difference between an HRA and an HSA? The simplest way to think about it is ownership. A Health Reimbursement Arrangement (HRA) is owned and funded entirely by you, the employer. The funds belong to the company and typically don’t follow an employee if they leave. A Health Savings Account (HSA), on the other hand, is an account owned by the employee. Both you and your employee can contribute to an HSA, and the money is theirs to keep forever, even if they change jobs.

Can I offer an HRA alongside my company’s traditional group health plan? Yes, you absolutely can. This is actually a very popular strategy for businesses looking to manage their healthcare costs. You can pair an HRA with a high-deductible health plan (HDHP) to help your employees cover their deductible and other out-of-pocket expenses. This allows you to offer a comprehensive benefits package while keeping your monthly premium costs more predictable and under control.

Why is it so important to use a third-party administrator instead of managing the HRA myself? While it might seem tempting to manage your HRA in-house to save on fees, it opens your business up to serious compliance risks. When you review an employee’s reimbursement claims, you are handling their private health information, which is protected under HIPAA. A mistake could lead to significant penalties. Using a third-party administrator creates a necessary firewall, ensuring all claims are handled compliantly and confidentially, which protects both your employees’ privacy and your company.

Do I have to offer the same HRA allowance to every employee? Not necessarily. One of the best features of an HRA is its flexibility. While you can’t discriminate, you can set different allowance amounts for different classes of employees. For example, you could offer one allowance for full-time salaried employees and another for part-time hourly employees. The key is to define these classes based on legitimate job-based criteria and apply the rules consistently to everyone within a class.

What happens to an employee’s HRA funds if they leave the company mid-year? Because the HRA is an employer-owned account, any unused funds typically stay with the company when an employee leaves. You can set a “run-out” period that gives former employees a short window of time, often 90 days, to submit claims for expenses they had while they were still employed. After that period, the remaining balance reverts back to your business.