HRA Eligible Expenses—A Clear Overview

Health reimbursement arrangements are a great vehicle for employers and employees to save costs on their medical coverage. But no employee wants to rack up a mountain of medical costs only to discover they’re not eligible for reimbursement. So, what exactly can you spend them on? 

This guide provides an overview of HRA eligible expenses, including the advantages of offering them and the contribution limits associated with each HRA type. 

What are health reimbursement arrangements (HRAs)?

Health reimbursement arrangements are tax-advantaged benefits plans employers can offer to cover employees’ medical expenses, insurance premiums, and even dental and vision coverage. Some employers provide HRAs as a supplement to group health insurance, others as an alternative; in either case, this is influenced in part by the type of HRA you offer: 

• Qualified small employer HRA (QSEHRA): Available to companies with fewer than 50 employees 
• Individual coverage HRA (ICHRA): Available to companies of any size, but currently the only Affordable Care Act-compliant alternative to group health insurance for Applicable Large Employers (with at least 50 employees) 
• Integrated or group coverage: Combines with a group health plan as an additional source of funding for out-of-pocket healthcare expenses 
• Excepted benefit HRA (EBHRA): Offers coverage for vision and dental insurance premiums not covered by a primary group plan

What are the benefits of HRAs for employers and employees?

Health reimbursement arrangements are just one way to offer health insurance to your employees. But this particular model has multiple advantages for employers and employees alike: 

Tax advantages

If both parties stick to stringent rules set by the Internal Revenue Service (IRS), HRAs are generally tax-free for employers and employees. For employers, the cost of HRAs for employees can be treated as a business expense to reduce the amount of taxes owed. For workers, any reimbursements they receive under the HRA are not taxed as income, giving them more money to cover their medical services. 

Increased employee satisfaction 

HRAs let employees breathe a sigh of relief that their healthcare costs are taken care of. Employees who feel physically, mentally, and financially supported by their employer in this way are more likely to stay with the company long-term, reducing turnover rates and associated recruitment costs.

Improved health outcomes

The Kaiser Family Foundation reports some disheartening data: 1 in 4 U.S. adults have struggled to afford healthcare costs in the past year. Even 48% of insured adults struggle with how to pay their monthly health insurance premiums. And large shares of adults with employer-sponsored coverage rate their insurance as “fair” or “poor” when asked about their monthly premium and out-of-pocket costs to see a doctor.

HRAs can alleviate some of the financial burden by covering costs not included in traditional health insurance plans, such as deductibles, copayments, and coinsurance. This can lead to improved health outcomes for employees because they’re more likely to seek necessary medical care without worrying about the cost. 

HRA eligible expenses at a high level

IRS Publication 502 offers an extensive guide to every type of medical and dental expense your HRA may cover. At a high level, these include: 

Medical expenses 

Employees can use their HRA funds to pay for a wide range of interventions and medical treatment. These include: 

• General expenses associated with doctor’s visits, mental health services, and dental or vision care 
• Preventive care and diagnostics such as screenings, check-ups, and tests that highlight any potential issues
• Medical equipment or supplies such as bandages, wheelchairs, crutches, etc. 
• Home and vehicle modifications for a person with mental or physical disabilities 
• Long-term care and support services, such as home care, lifetime care, nursing services, or hospital services 
• Medications and prescription drugs such as insulin or birth control pills

Health insurance premiums

Employees can also use their HRA to cover their health insurance premiums. This includes: 

• Individual health insurance premiums for plans purchased through the Health Insurance Marketplace or directly from an insurer 
• COBRA premiums for continuation of coverage after leaving a job that offered health insurance benefits 
• Medicare Part A, B, C, and D premiums to supplement or replace traditional health insurance plans 

Other eligible expenses

An HRA can cover other miscellaneous costs involved in supporting an employee’s primary care. These might include trips, legal fees, and lodging. 

HRA limits and rules 

There’s a fair bit of red tape around healthcare reimbursement arrangements and their rules, including:  

Annual contribution limits

• ICHRAs have no minimum or maximum contribution limits. 
• QEHRAs have a maximum contribution limit of $6,150 for a single employee’s coverage and $12,450 for family coverage.
• EBHRAs have a contribution limit of $2,150. 
• Integrated or group coverage plans have no contribution limits at the upper or lower end. 

Reimbursement requirements

Employees must prove they spent HRA funds on eligible expenses by submitting documentation such as receipts or invoices to the employer for reimbursement. Employers must also verify the expenses are eligible under IRS rules. 

HRA compliance considerations

Employee benefits compliance should be a top priority for any employers providing HRAs. The main compliance considerations to keep in mind are: 

Affordable Care Act (ACA) compliance 

HRAs must comply with the ACA’s market reforms, including providing minimum essential coverage and not imposing lifetime or annual limits on essential health benefits. ICHRAs fulfill these requirements, but other types may not. 

ERISA compliance 

Employers offering group health plans, including integrated HRAs, must comply with the Employee Retirement Income Security Act (ERISA), including reporting obligations and fiduciary responsibilities.  

HIPAA compliance

HRAs must comply with the Health Insurance Portability and Accountability Act (HIPAA) regulations to ensure that protected health information is properly safeguarded.

Check out our HR compliance checklist for more information on IRS reporting requirements. 

Maximizing HRA benefits: Best practices

Get the most out of your HRA by considering these best practices for administration and employee engagement:

Communicating HRA benefits to employees 

A well-structured communication strategy is essential for ensuring your employees understand how to use their health benefits and can maximize their value. Employers should provide clear, straightforward information about how HRAs work, what they can use them for, and how the reimbursement process works. 

Using technology to simplify administration

The right HRA platform supports employers with HRA plan design, compliance requirements, and reporting functionality. Employees can log into the software to compare and enroll in health plans, access key documentation, and view their contribution limit. 

Reviewing and updating your HRA plan

An HRA strategy should never be set in stone. Not only could the IRS contribution limits change each year, but you’ll also need to review your health reimbursement arrangement in line with your latest benefits goals and employee needs. 

For example, if you want to improve your employee retention rate, you may compare your HRA offering with competitors in your industry and increase your contributions accordingly (in line with IRS guidelines.) 

The future of HRAs lies with Benepass

Benepass offers a range of pre-tax health insurance options, including health savings accounts, flexible spending accounts, and HRAs. The beauty of HRAs is their flexibility, allowing employees to tailor their medical insurance in a way that makes the most sense to them while saving money on taxes. 

The Benepass HRA is a versatile, card-first approach that enables workers to pay for their qualified medical expenses and insurance premiums without driving up the cost for the rest of your group. Here’s how it works:

• You’ll choose your program and define your HRA pillars of eligible spending, such as mental health, medical travel, fertility costs, and more. 
• You’ll establish how much to contribute to the HRA (based on IRS pre-defined limits). 
• You’ll enroll your employees through an integration between Benepass and your payroll system. 
• You’ll invite your employees to start using their Benepass HRA from day one.  

Ready to level up your healthcare offering? Book a free Benepass demo today.