HRA Basics

Topic Progress:

Background and basics

HRA Basics

HRAs are set up as notional (i.e., unfunded) accounts. This means that there is never any money actually held in a specific employer or employee account. Rather, the employer uses its general funds to reimburse the employee for eligible expenses as defined by the plan. 

Important HRA rules include:

An HRA must be paid for solely by the employer and may not be provided through a salary reduction election or under a Code §125 cafeteria plan.

A traditional HRA is typically paired with a high deductible medical plan, although it can sometimes be offered on a stand-alone basis in limited cases, such as a retiree HRA, or the new Excepted Benefit HRA (EBHRA).

Amounts in the employee's HRA account that are not used to reimburse the employee during the plan year may be carried over into subsequent plan years.

HRA claims must be substantiated based on IRS rules before they can be reimbursed.