What a Health Reimbursement Arrangement is

A Health Reimbursement Arrangement (HRA) is an account your employer sets up and funds to help you pay for medical expenses. Your employer decides how much money goes into it each year, and you use that money to pay for things like doctor visits, prescriptions, dental work, and vision care. The key difference from an HSA or FSA is that your employer owns the account — you cannot take it with you if you leave the job.

The money your employer puts in is not counted as taxable income to you, which means you do not pay income tax on it. When you spend the money on medical expenses, you do not pay taxes on that spending either. This makes it a tax-advantaged way for employers to help their workers cover healthcare costs.

Key Takeaways

  • Your employer funds and owns the HRA, not you, so the account stays with your employer if you change jobs.
  • Money in an HRA can be used to pay for a wide range of medical expenses, including deductibles, copays, prescriptions, dental, and vision care.
  • You do not pay income tax on the money your employer contributes, and you do not pay taxes when you spend it on medical costs.
  • Some HRAs let unused money roll over to the next year, while others require you to spend it or lose it — your employer decides the rule.
  • If you leave your job, you typically lose access to the HRA balance, though some employers let you continue coverage under COBRA.

How money flows in and out of an HRA

Your employer decides at the start of each year how much money to put into your HRA. This amount varies widely — some employers contribute a few hundred dollars, others several thousand. You do not choose the amount, and you do not contribute your own money to it (though some employers allow optional employee contributions, which is less common).

When you have a medical expense, you pay for it out of pocket first, then submit a receipt or claim form to the HRA administrator — usually the same company that handles your health insurance. The administrator reviews the receipt, confirms it is a covered medical expense, and reimburses you from the HRA balance. Some employers set up debit cards linked to the HRA so you can pay directly without submitting receipts afterward, though you may still need to keep records.

The types of expenses covered are broad: deductibles and copays on your health insurance, prescription medications, dental work, vision care, hearing aids, mental health counseling, and many other medical services. The IRS publishes a list of what counts as a medical expense, and most routine healthcare falls into it.

What happens to unused money

This is where HRAs differ most from one employer to another. Some HRAs have a carryover provision, which means unused money rolls into the next year. Others operate on a "use it or lose it" basis, where any balance left at the end of the year disappears. A few employers allow a grace period — usually two and a half months into the new year — where you can still spend the previous year's balance.

Your employer's plan documents will state which rule applies to your HRA. If you are unsure, ask your HR department or benefits administrator. Knowing this matters because it changes how you should plan your medical spending.

HRAs and health insurance coverage

An HRA is not health insurance itself — it is a way to pay for costs that your health insurance does not fully cover. You still need a separate health insurance plan, whether through your employer, the individual market, or a government program. The HRA works alongside that insurance to reduce your out-of-pocket costs.

Some employers offer what is called a may have access to Small Employer HRA (QSEHRA), which is designed for small businesses. A QSEHRA can be used with individual health insurance plans you buy on your own, rather than requiring employer group coverage. This is less common but worth asking about if you work for a small employer.

What happens when you leave your job

When you change jobs or leave employment, you lose access to the HRA. Unlike an HSA, which you own and can take with you, the HRA stays with your employer. Any unused balance typically goes back to your employer — you do not get to keep it or transfer it elsewhere.

If you have ongoing medical expenses right before you leave, you may be able to submit claims for expenses incurred while you were employed, even if you submit the claim after you have left. Check with your benefits administrator about the important date for submitting claims. Some employers also offer COBRA continuation coverage, which may let you keep using the HRA for a limited time after you leave, though you would have to pay the full cost yourself.

HRA versus HSA and FSA

All three accounts help you pay for medical expenses with pre-tax money, but they work differently. An HSA is owned by you and travels with you between jobs. An FSA is employer-owned like an HRA but typically has stricter rules about what you can spend on and usually requires you to spend the money within the year. An HRA is employer-owned, has broader spending options, and may allow carryover.

The main practical difference: if job mobility matters to you, an HSA is the only one you can take with you. If your employer offers an HRA with carryover, it can be a useful way to build up savings for future medical costs while you stay in that job.

How to use your HRA

First, find out from your HR department or benefits website how much your employer has contributed to your HRA and whether it has carryover rules. Then, when you have a medical expense, keep the receipt or explanation of benefits from your provider. Submit it to the HRA administrator — your benefits website usually has a portal where you can upload documents and request reimbursement.

If your HRA comes with a debit card, you may be able to use it directly at pharmacies or medical offices without submitting receipts first. However, you should still keep receipts in case the administrator asks for proof later. Some expenses, like over-the-counter medications, may require a prescription or doctor's note to be reimbursed, so ask the administrator what documentation you need before you buy.

Frequently Asked Questions

Can I use my HRA for my family members' medical expenses?

Yes, if they are covered under your health insurance plan or claimed as dependents on your taxes. The HRA can reimburse medical expenses for you, your spouse, and your children. Check your plan documents or ask your benefits administrator which family members are covered.

What if I do not use all the money in my HRA by the end of the year?

It depends on your employer's plan. Some HRAs let unused money roll over to the next year. Others have a use-it-or-lose-it rule where the balance resets to zero. A few allow a grace period of a few months into the new year to spend the old balance. Your HR department can tell you which rule applies to your HRA.

Can I withdraw HRA money for non-medical expenses?

No. If you withdraw money for expenses that do not count as medical under IRS rules, you will owe income tax on that amount plus a penalty. The HRA is designed specifically for healthcare costs, and the tax advantage only applies when you spend it that way.

Do I need to submit receipts every time I use my HRA?

It depends on how your employer set it up. If you have an HRA debit card, you may not need to submit a receipt at the time of purchase. However, you should keep receipts because the administrator may ask for proof later that the expense was medical and covered under the plan.

What happens to my HRA if I go on leave from work?

If you are on paid leave, your HRA typically continues to work normally. If you are on unpaid leave or your employment is suspended, check with your HR department about whether the HRA remains active and whether your employer continues to fund it during that time.