Some employers set up a type of funding account called a health reimbursement arrangement, or HRA, to help you pay for medical care. An HRA is an employer-funded plan that reimburses you for out-of-pocket medical expenses.
These tax-free reimbursements cover qualified out-of-pocket medical expenses such as deductibles and copays. In some cases, HRAs will reimburse you for other expenses permitted by the IRS, known as two thirteen D expenses. Such expenses might include over-the-counter medication, for example.
HRAs offer several benefits:
They are funded exclusively by your employer.
Your employer’s contributions to your HRA are not included in your gross income.
Qualified medical reimbursements from your HRA are tax-free.
Unlike a flexible spending account, an HRA generally has no “use it or lose it” rule. Depending on the plan rules set up by your employer, the balance in your account may be rolled over from year to year.
Health reimbursement arrangements are benefit programs set up and funded solely by employers.
An employer controls the benefits and design of its HRA plan. Most HRAs will reimburse you for services covered by your health plan when you have to pay a deductible, a copay, or coinsurance.
Some employers also allow their HRA plan to reimburse you for medical expenses that aren’t covered by the health plan. Such expenses might include over-the-counter medication, braces, contact lenses, and crutches. Eligible services are known as two 13 D expenses. A list of these eligible expenses is available from the IRS in Publication 502.
HRAs can be set up with any health plan. However, they are often paired with high deductible health plans. This means that your contribution to the cost of your medical plan may be lower. That’s because the premium for high deductible health plans is generally lower than the premiums for other types of health plans.
In benefit plans associated with an HRA, both medical and prescription expenses are often subject to the deductible. This is not an IRS requirement, though.
HRAs cover employees, their spouses, and any other tax dependents.
Health reimbursement arrangements cover employees, their spouses, and their tax dependents.
Some people are not eligible for the tax savings provided by an HRA. These include self-employed persons who own a business by themselves or in a partnership, including limited liability corporations and limited liability partnerships. Key employees in S-corporations who own more than 2 percent of the business are not eligible for these tax savings, either. Limitations may also apply for participants who are highly compensated as defined by the IRS.
How does a health reimbursement arrangement work?
On a regular basis, your employer will contribute money to an HRA that has been set up for each employee who is enrolled in the plan. Your employer determines the amount of these contributions in advance. The amount will be the same for all employees, but an employer can designate a higher amount for employees who enroll in family coverage as opposed to employees who enroll in single coverage. Your employer will select an administrator to keep track of the funds in the account.
An HRA differs from a flexible spending account in that only the money actually in your HRA is available for reimbursements. However, you can use future contributions to your HRA to cover expenses from past services. This is permitted as long as you received those services after your HRA was set up.
Let’s look at an example.
Let’s say your HRA is set up on January 1st. By December 31st, your employer will have contributed $600. As of March 31st, however, only $150 has been contributed to your HRA.
If you have a $200 claim on April 2nd, only $150 is immediately available. However, as more funds are contributed to your HRA, you may use those funds towards the remaining balance of your claim.
After you receive a covered service, wait for the arrival of your explanation of benefits, or EOB. Then submit your EOB to the account administrator for reimbursement. Your account administrator will provide an HRA claim form for you to use.
Your HRA administrator must “substantiate” your claim before reimbursing you. To provide this approval, the administrator must confirm that the HRA funds were used for a “qualified” purpose as defined by the IRS.
If the administrator approves your claim, you will receive a reimbursement check. Some administrators will deposit reimbursements right into your personal checking account.
If your HRA plan allows you to be reimbursed for expenses that aren’t covered by your health plan, you will need to fill out a claim form and submit receipts. If your HRA covers the costs of over-the-counter medications or bandages, for example, you would submit your drug-store receipts for these purchases.
CareFirst offers the BlueFund Health Reimbursement Arrangement program. If your employer has chosen to use this program, your claims are automatically sent to the BlueFund administrator. That means you will not need to provide documentation for services covered by your CareFirst health plan.
BlueFund makes reimbursement from an HRA easy and convenient. There is nothing to submit, and no claim forms to complete.
With the CareFirst BlueFund HRA program, your out-of-pocket costs for covered medical plan expenses will be reimbursed automatically as long as there are funds in your HRA. You can receive a check or request that the funds be deposited directly into your personal checking or savings account.
Some HRA plans allow you to be reimbursed for expenses beyond those covered by your health plan. If that’s the case, you may need to submit those expenses to the BlueFund administrator for reimbursement.
Employers who do not offer the BlueFund HRA program will arrange for the administration of their programs. You will need to submit receipts or documentation, such as an explanation of benefits, to this administrator so you can be reimbursed.
If you have a BlueFund HRA, your claims will automatically be reimbursed from your health reimbursement account unless you have a debit card.
If you receive an HRA debit card, your claims will not be reimbursed automatically. Instead, you will be able to use your debit card for direct access to the money in your account at the doctor’s office, hospital, or pharmacy. This means you won’t have to use money out of your own pocket and wait for reimbursement.
Debit cards are optional for HRAs. Your employer will decide whether to get debit cards for all participants in your company’s HRA plan.
You can also use your debit card to pay for over-the-counter items at other stores, as long as your plan permits these expenses.
If you have a debit card, but pay for something without using your debit card and wish to be reimbursed, you will have to submit the explanation of benefits or receipt for that expense to the BlueFund administrator. You can find reimbursement expense forms online at www.carefirst.com.
With or without a debit card, the BlueFund HRA program is easy to use and convenient.
It’s important to understand your HRA plan. Here are answers to some frequently asked questions:
What happens to your unused funds? Your employer determines the answer. Your employer may allow unused funds to roll over to the next year for your use. However, your employer may limit the amount you can roll over from year to year. Be sure you understand the rollover rules for your employer’s HRA program.
Can expenses from last year be reimbursed using funds contributed to the HRA this year? If your HRA existed at the time you received those services, you can usually use this year’s funds to pay last year’s expenses. That can be helpful if you ran out of HRA money last year and still have an unpaid balance on a previous expense. In such a case, you can use this year’s funds to reimburse yourself.
Let’s look at the answers to some other important questions.
Here are some more frequently asked questions:
What happens if you leave your employer?
In most cases, you will lose the benefit. If you qualify for COBRA, you may be eligible to keep participating in the program.
Can you have a flexible spending account if you have an HRA?
Yes, your employer can offer both types of accounts. Your HRA will usually pay eligible expenses first, until all of the money is used. After that, the flexible spending account will pay. Your employer determines the specifics.
We hope this presentation has provided the information you’ll need to make the right choice. As you consider choosing a consumer directed health plan, here are some things to remember:
You will have the same medical coverage as HMO and PPO plans, but you will generally need to meet a high deductible before your benefits begin.
Since preventive care is covered in full or subject only to a copay, you can focus on staying healthy.
The plan requires you to be more cost-conscious when you seek medical care.
If you don't expect to use many health care services beyond preventive care, you can save money on monthly premiums. But you’ll still be protected if your health care situation should change.
A health reimbursement arrangement, or HRA, is an excellent and convenient way to pay for your deductible and other out-of-pocket expenses.
Please visit the Members & Visitors page at www.carefirst.com to review the tools CareFirst offers to help you make the consumer directed health plan decision.
Intro to CDH
Health Insurance Basics
High Deductible Health Plans
Health Savings Accounts
HSA Tax Benefits
How HSAs Work