What an HRA is and how it differs from an HSA or FSA

A Health Reimbursement Arrangement (HRA) is an account your employer funds to pay for your medical expenses. Unlike an HSA or FSA, you do not contribute your own money—your employer decides how much to put in each year, and you use it to cover may have access to health costs. The employer owns the account, not you, which means the money stays with the company if you leave your job.

The key difference from an HSA is that an HRA requires you to be enrolled in a health plan through your employer; you cannot open one on your own. Unlike an FSA, an HRA does not have a "use it or lose it" deadline—most HRAs let unused money roll over to the next year, though your employer sets the rules on how much can carry over. An HRA also does not require payroll deductions from your paycheck the way an FSA does.

HRAs come in several forms. A may have access to Small Employer HRA (QSEHRA) is available only to businesses with fewer than 50 employees and works differently—employees can use it even if they buy insurance on their own, outside the employer plan. An Individual Coverage HRA (ICHRA) lets employers give money to employees to buy their own health insurance on the individual market. A Group Coverage HRA is the traditional type, paired with a group health plan.

Key Takeaways

  • Your employer funds an HRA and owns the account; you cannot contribute your own money or take the account with you if you leave.
  • HRA money rolls over year to year (the amount depends on your employer's plan), unlike an FSA which typically expires at year-end.
  • You can use HRA funds for the same may have access to medical expenses as an HSA: deductibles, copays, prescriptions, dental, vision, and many other out-of-pocket costs.
  • A QSEHRA is for small employers and lets employees use the money even if they have insurance outside the company plan.
  • When you leave your job, the HRA money stays with your employer—you cannot transfer it or take it with you.

What you can spend HRA money on

HRA funds cover the same may have access to medical expenses as an HSA. This includes deductibles, copayments, coinsurance, and prescription drugs. Dental work, vision care (including glasses and contacts), hearing aids, and mental health treatment all may have access to. You can also use HRA money for over-the-counter medications, medical equipment like blood pressure monitors or glucose meters, and certain medical procedures not covered by your insurance.

The IRS publishes a list of what counts as a may have access to expense, and it is long—it includes things like physical therapy, chiropractic care, acupuncture, and even some fertility treatments. If you are unsure whether a specific cost qualifies, ask your HRA plan administrator before you spend the money. Using HRA funds for non-may have access to expenses triggers taxes and a penalty, just as it would with an HSA.

One important limit: you cannot use HRA money to pay your insurance premiums themselves (with one exception—COBRA premiums, which are continuation coverage if you leave your job). You can use it for the costs your insurance does not cover, but not for the monthly premium bill.

How to use your HRA and submit claims

When you receive medical care, you pay out of pocket at the time of service. Then you submit a claim to your HRA plan administrator with a receipt or explanation of benefits (EOB) from your provider. The process varies by employer—some use a debit card linked to the HRA, which lets you pay directly at the pharmacy or doctor's office without submitting a claim afterward. Others require you to pay first and then file a reimbursement request.

If your HRA uses a debit card, you swipe it like a regular card at pharmacies and medical offices. The card is tied to your HRA balance, so you cannot spend more than what your employer has funded. Some employers require you to submit a receipt even when using the card, to prove the expense was may have access to.

For reimbursement claims, you typically upload receipts or EOBs through an online portal or send them by mail to your plan administrator. Most employers process claims within 5 to 10 business days. Keep copies of all receipts and documentation for at least three years, in case the IRS audits your account.

What happens to your HRA money when you leave your job

This is the biggest drawback of an HRA: when you leave your employer, the money stays behind. You cannot roll it over to an HSA, transfer it to a new employer's HRA, or take it with you in any form. The funds belong to your employer, not to you. Some employers may let you use remaining HRA money during a grace period after you leave (usually 30 to 90 days), but this is optional and depends on the plan.

If you are covered by COBRA (continuation health insurance after leaving your job), you may be able to use your remaining HRA balance during your COBRA coverage period, but again, this is up to your employer. Once your coverage ends, any unused HRA money is gone.

This is very different from an HSA, which you own and can take with you. If job mobility matters to you, an HSA is a better long-term savings tool. An HRA is best viewed as a year-to-year benefit that helps you pay for current medical costs.

HRA rules and contribution limits

Your employer decides how much to contribute to your HRA each year—there is no legal maximum, though the IRS does set limits for certain types. For a Group Coverage HRA paired with a high-deductible health plan, the contribution cannot exceed your plan's deductible. For a QSEHRA (small employer), the 2024 limit is $2,850 for individual coverage and $5,700 for family coverage; these amounts adjust each year for inflation.

An ICHRA (Individual Coverage HRA) has no set limit—your employer can contribute any amount, as long as it does not exceed what you actually spend on individual market insurance premiums and may have access to medical expenses combined.

HRA money does not expire at the end of the year the way FSA money does. Your employer can allow unused funds to roll over, though they can also set a cap on how much rolls over (for example, some employers let 25% of the annual contribution roll over, while others allow 100%). Your employer's plan document spells out the rollover rules, so check with your HR department to understand what happens to unused money in your plan.

Taxes and how HRAs are treated by the IRS

HRA contributions are not taxed as income to you—your employer funds the account with pre-tax dollars, and you do not see it on your paycheck. Reimbursements for may have access to medical expenses are also tax-free. This is one of the main benefits of an HRA: it reduces the amount of your income subject to federal income tax, Social Security tax, and Medicare tax.

If you use HRA money for a non-may have access to expense, that amount is taxed as income and you owe a 20% penalty on top. For example, if you use $100 of HRA money to buy over-the-counter cold medicine without a prescription (which does not may have access to), you would owe income tax on that $100 plus a $20 penalty. Keep receipts to prove your expenses were may have access to, in case you are audited.

When you leave your job, any unused HRA balance does not transfer to you, so there is no tax consequence—the money simply reverts to your employer's account. You cannot claim it as income or a loss on your tax return.

QSEHRA and ICHRA: special HRA types for small businesses and individual coverage

A may have access to Small Employer HRA (QSEHRA) is designed for businesses with 2 to 50 employees. Unlike a Group Coverage HRA, employees do not have to be enrolled in the employer's health plan to use a QSEHRA. Instead, employees can buy their own insurance on the individual market (through healthcare.gov or a state exchange) and use the QSEHRA to reimburse premiums and out-of-pocket costs. This gives small business owners a way to help employees pay for health coverage without offering a group plan.

An Individual Coverage HRA (ICHRA) works similarly but is available to employers of any size. The employer gives money to employees, who use it to buy individual market insurance and pay for may have access to medical expenses. ICHRAs are newer (introduced in 2020) and are growing in popularity as an alternative to traditional group health plans.

Both QSEHRA and ICHRA have different rules than Group Coverage HRAs. For example, employees must be notified in writing about the HRA before they enroll in individual market coverage, and the employer must offer the same contribution amount to all employees in the same class (such as all full-time employees). If you work for a small employer or are offered an ICHRA, ask your HR department for the specific terms of your plan.

Frequently Asked Questions

Can I use my HRA to pay my health insurance premium?

Not usually. HRA money covers out-of-pocket costs like deductibles and copays, not your monthly insurance premium. The one exception is COBRA premiums—if you continue your employer's coverage after leaving your job, you can use remaining HRA funds to pay COBRA premiums. A QSEHRA or ICHRA is different; those are specifically designed to help pay for individual market insurance premiums.

What happens to my HRA if I get laid off or resign?

The money stays with your employer. You lose access to it once your coverage ends, unless your employer allows a grace period (usually 30 to 90 days) to submit claims for expenses you already incurred. You cannot transfer the balance to a new job or roll it into an HSA. This is why an HRA is best for covering current-year medical costs, not long-term savings.

Can I use my HRA for my spouse or children?

Yes, if they are covered under your employer's health plan. HRA reimbursements apply to any family member enrolled in the plan. If your spouse or children have separate coverage, they cannot use your HRA unless your employer offers a family QSEHRA or ICHRA that allows it.

Do I have to spend my entire HRA balance each year?

No. Unlike an FSA, HRA money rolls over to the next year. Your employer sets the rollover rules—some allow unlimited rollover, while others cap it at a percentage of the annual contribution. Check your plan documents or ask HR what happens to unused money in your specific HRA.

Can I withdraw HRA money as cash if I do not use it for medical expenses?

No. HRA funds can only be used for may have access to medical expenses. If you withdraw money for any other reason, it is treated as taxable income and you owe a 20% penalty. The money is not yours to spend freely—it is set aside specifically for health costs.