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What Is an HRA, and How Does It Work?

Writer: Gil Mahler
Gil Mahler
4 days ago
2 min read

What if your boss gave you money to help pay your medical bills? That's basically what a Health Reimbursement Arrangement, or HRA, does. Here's how it works.

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The basics

An HRA is money your employer sets aside for your health costs. When you pay for care, your HRA pays you back. That's what "reimbursement" means.

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Here's what makes an HRA different from other accounts:

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  • Only your employer puts money in. You don't add anything from your paycheck.

  • It's tax-free for you. You don't pay taxes on the money you get back.

  • Your employer makes the rules. They decide how much goes in, what it pays for and whether leftover money rolls over.

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How it works, step by step

  1. Your employer says how much is in your HRA for the year. For example, $1,000.

  2. You get care and pay for it, or use an HRA card if your plan has one.

  3. You send in your receipt.

  4. Your HRA pays you back, up to your limit.

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Different kinds of HRAs

There are a few types. Your employer will tell you which one you have:

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  • Regular HRA: Works with your work health plan. Often helps pay your deductible or copays.

  • Individual Coverage HRA (ICHRA): Instead of offering a group plan, your employer gives you money to buy your own plan, like one from the Marketplace.

  • Small business HRA (QSEHRA): For small companies that don't offer a group plan. It helps pay for your own insurance and care.

  • Excepted benefit HRA: A small add-on HRA for things like dental and vision. For 2027, it can be up to $2,250.

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Things to watch out for

  • If you leave your job, you usually lose any money left in your HRA.

  • It might block your HSA. Many regular HRAs count as "other coverage," so you can't add to an HSA. Some special HRAs are built to work with an HSA. Ask your employer.

  • Read the rules. Your HRA might only cover certain costs.

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Meet Omar

Omar's employer puts $1,500 a year in his HRA to help with his $2,000 deductible. In March, Omar broke his wrist and got a $1,200 bill. He sent in his receipt, and his HRA paid him back all $1,200. Later that year, he had a $600 bill. His HRA paid $300, the rest of his money for the year, and Omar paid the other $300.

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Key takeaways

  • An HRA is money your employer sets aside to pay you back for health costs.

  • Only your employer adds money, and it's tax-free for you.

  • Your employer sets the rules, so check what yours covers and whether it rolls over.

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