• Health Reimburement Arrangement (HRA) Accounts FAQ

    Our company has a health FSA through PacificSource Administrators, and we’d like to add an HRA. Which account reimburses health expenses first?

    This depends on the type of plan selected. Generally, the more restrictive play pays first. Please contact us for more information.

    Who is eligible to participate in an HRA?

    Except for owners and partners, all employees are eligible to participate in HRAs. According to IRS guidelines, anyone with two percent or more ownership in a schedule S corporation, LLC, LLP, PC, sole proprietorship, or partnership may not participate. Your PacificSource Administrators representative will work with you to resolve any eligibility questions.

    Can employees use pre-tax salary reductions to contribute to the HRA?

    No, the HRA itself can only be funded with employer contributions. If offered with an insurance plan under a cafeteria plan, the employee portion of the premium may be paid with pre-tax dollars under a cafeteria plan.

    What types of medical expenses can be reimbursed with the HRA?

    To a large extent, that’s up to you as the employer. You can allow reimbursement of a broad range of health-related expenses by adopting the IRS Section 213(d) definition of allowable expenses. Doing so would allow HRA reimbursement of the same expenses allowed under a healthcare FSA, including medical, dental, vision, prescription drug, and health insurance premium expenses.

    Alternatively, you can set up your HRA to allow reimbursement of only certain types of health-related expenses. Many employers limit HRA reimbursements to expenses that are covered under their health plan but subject to the deductible. You might then consider offering employees an FSA to self-fund other expenses not allowed under the HRA, such as dental and vision care.

    How much should I allocate for each employee?

    As the employer, you have the flexibility to set your own HRA allocation amount. In general, we recommend funding the HRA at 50 to 75 percent of your health plan’s annual deductible for each employee. That level gives employees a reasonable amount of first-dollar coverage while still providing for some cost sharing.

    Is the HRA allocation based on a calendar year or a rolling plan year?

    The HRA allocation is generally based on the plan year. However, if you purchase an HRA mid-year and want to adjust the HRA’s plan year to coincide with your medical plan’s calendar year deductible, we can do that. In that case, you would prorate the first (partial) year’s HRA allocation, and begin the full annual allocation on the following January 1.

    Can I define the HRA carry-over amount?

    Yes, you may set rules on the HRA carry over provision, and may choose to impose an annual carry over maximum. You may also cap the total HRA account balance if you wish.

    Can employees cash out unused HRA amounts before retiring or changing jobs?

    No, the HRA can only be used for reimbursement of medical expenses. The plan may be designed, however, to permit a terminated employee to be reimbursed for medical expenses incurred after the termination date.

    Can employees use their HRA funds to pay COBRA premiums after termination?

    It’s up to you. Employees can access their remaining HRA funds as long as they remain on continuation coverage, but you can choose whether to allow continuation premium as an eligible expense under their HRA.

    Have another question about HRAs? Please contact us.