Health Reimbursement Arrangement

Example

“Tom's employer contributes $2,000 annually to his HRA, which he uses to pay for prescription medications, dental visits, and his portion of the family health insurance premium.”

Memory Tip

Remember 'HRA = Help with Reimbursement from your Employer' - the company helps by reimbursing your medical costs.

Why It Matters

HRAs provide tax-free money for medical expenses, effectively increasing your purchasing power for healthcare while reducing your taxable income. This employer-funded benefit can significantly reduce your out-of-pocket medical costs without requiring you to contribute your own money upfront.

Common Misconception

Many employees think HRA funds are theirs to keep forever like a savings account, but HRAs are actually owned by the employer who sets the terms for forfeiture and rollover. Unlike HSAs, you typically lose unused HRA funds when you leave your job, though some employers allow limited rollovers or grace periods.

In Practice

Michelle's employer provides a $1,500 annual HRA to help with medical expenses. Throughout the year, she submits receipts for her $150 monthly asthma inhaler, a $300 dental cleaning, $200 for new glasses, and $400 in copays for physical therapy. She receives tax-free reimbursements totaling $1,250, leaving $250 unused in her HRA. When she accepts a new job in December, she loses the remaining $250 since her employer's HRA policy doesn't allow departing employees to keep unused funds, unlike an HSA which would travel with her.

Etymology

Established by IRS regulations in 2002, combining 'reimbursement' (from French 'rembourser', meaning to pay back) with 'arrangement' to describe these employer-funded benefit structures.

Common Misspellings

Related Terms

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