Which of These Is Not a Characteristic of a Health Reimbursement Arrangement (HRA)?
Health Reimbursement Arrangements (HRAs) are an increasingly popular form of employee benefit that allows employers to reimburse employees for qualified medical expenses. Although HRAs offer flexibility and tax advantages, there are certain characteristics that distinguish them from other types of health plans. In this article, we will explore the features of an HRA and identify one characteristic that does not apply to this type of arrangement.
HRAs are employer-funded accounts that can be used to pay for qualified medical expenses, such as health insurance premiums, deductibles, and co-pays. These accounts are established by employers and are an alternative to traditional group health insurance plans. The funds in an HRA are contributed by the employer and are owned by the employee. Here are some key characteristics of an HRA:
1. Employer funding: One of the primary features of an HRA is that it is funded solely by the employer. Employees do not contribute to the account through payroll deductions or any other means. The employer determines the amount of funding provided to each employee, which can vary based on factors such as job position or years of service.
2. Reimbursement for qualified expenses: HRAs are designed to reimburse employees for qualified medical expenses. These expenses must be incurred by the employee, their spouse, or dependents and must be eligible under the terms of the HRA plan. Common qualified medical expenses include doctor visits, prescription medications, and medical supplies.
3. Tax advantages: HRAs offer significant tax advantages for both employers and employees. Employer contributions to an HRA are tax-deductible, and employees do not pay taxes on the funds contributed to their HRA. Additionally, employees do not pay taxes on reimbursements received from the HRA for qualified medical expenses.
4. No rollover of funds: Unlike Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs), HRAs do not allow employees to roll over funds from year to year. Any unused funds in an HRA at the end of the plan year are forfeited. This “use it or lose it” rule encourages employees to utilize their HRA funds for qualified expenses during the plan year.
5. No portability: Another characteristic of HRAs is that they are not portable. When an employee leaves a job, they cannot take their HRA funds with them. The employer retains ownership of the HRA funds, and the employee loses access to the account upon termination. However, some employers may offer a grace period during which employees can submit claims for reimbursement after termination.
FAQs:
Q: Can I use my HRA funds to pay for non-medical expenses?
A: No, HRAs are designed to reimburse employees for qualified medical expenses only. Using HRA funds for non-medical expenses may result in penalties or tax consequences.
Q: Can I use my HRA funds to pay for health insurance premiums?
A: Yes, one of the main uses of HRA funds is to pay for health insurance premiums, including premiums for individual or group health plans.
Q: Can I contribute my own money to my HRA?
A: No, HRAs are funded solely by the employer. Employees cannot contribute their own money to the account.
Q: Can I roll over unused HRA funds to the next plan year?
A: No, HRAs do not allow for rollover of funds. Any unused funds at the end of the plan year are forfeited.
In conclusion, the characteristic that does not apply to an HRA is the rollover of funds. Unlike HSAs or FSAs, HRAs do not allow employees to carry over unused funds from one plan year to the next. It is important for employees and employers to understand the features and limitations of HRAs to fully utilize this valuable employee benefit.
