An HRA is similar to an H.S.A. in that its purpose is to allow for tax-free reimbursement of health plan deductible and eligible health care expenses paid by the employee or individual covered under the plan; however, the HRA is very different in many other ways:
- No specific Health insurance plan design – for active employees, the employer provides the HRA in conjunction with its health insurance plan, but the employer is not bound to provide a plan with certain deductible and/or out-of-pocket maximums.
- The employee doesn’t’ own or operate the HRA account – the employer does. The employer decides the amount provided for reimbursement and when those reimbursements are available.
- Only the employer can contribute to the HRA – employees and others cannot put funds into the account.
- The employer administers the HRA account. The employer and/or the employer’s appointed administrator provides the means to receive reimbursement for eligible health care expenses from the HRA account.
- HRA payouts limited to eligible health care expenses. Since the employer or the employer’s appointed administrator is responsible for providing HRA payments or reimbursements, it is also their responsibility to ensure that HRA funds are never paid out for a purpose other than reimbursement of eligible health care expenses.
- Remaining funds upon death are forfeited. If the person for whom the HRA is intended dies, if the plan allows, eligible expenses for their eligible dependents may continue to be reimbursed. However, if there are no eligible dependents, the funds are forfeited. Since the employer maintains the funds until reimbursement is made, the remaining balance of the deceased is forfeited to the employer.