HRA Frequency Asked Questions

What is a Health Reimbursement Arrangement (HRA)?

• An HRA is an arrangement set up and funded by an employer with tax-deductible dollars. It can be used to reimburse employees for certain medical expenses they incur.

How do high-deductible health plans and HRAs work together?

• High-deductible health plans require employees to meet higher deductibles than most PPO plans, so these plans have more out-of-pocket costs due at the time health care services are rendered. Employees are reimbursed for pre-approved medical expenses out of their available HRA funds. Together, high-deductible health plans and HRAs provide an important way to save and plan for future health care expenses. However, any of our HDHP or PPO health plan may be paired with an HRA.

What are the advantages to offering such a plan?

• Working in conjunction with a financial arrangement like an HRA, high-deductible health plans encourage employees to make wiser health care decisions. Since employees are essentially using “their own money” to pay for health care expenses, they will use the funds more carefully. The result of employees knowing the cost of their care may mean reduced health plan costs in the future. HRAs represent an important way to save for future health care expenses. Employees may use HRA funds to subsidize the expenses associated with a high-deductible plan.

Who can contribute to an HRA?

• Only employers may contribute funds to an HRA.

When can HRA funds be accessed?

• Employees are reimbursed for employer-approved, “qualified medical expenses,” which could include deductibles, copays, coinsurance and prescriptions.

What is a qualified medical expense?

• Qualified medical expenses are defined by IRS code 213(d) and are listed in IRS Publication 502. However, our standard product pays for out-of-pocket expenses associated with medical and pharmacy costs. It does not pay for all 213(d) expenses. Certain reimbursable costs associated with HRA plans are determined by the employer.

Can HRA funds be used to pay medical insurance premiums?

• No, our standard product does not allow the HRA to pay for medical insurance premiums.

Who owns the HRA?

• Employers retain ownership of the funds set aside for an HRA. Funds in the HRA are not portable with the employee and you determine whether or not funds rollover from year to year.

What happens to the funds in an HRA after termination of employment?

• If an employee is terminated, retires or dies, you may require that the HRA balance be forfeited. Or after termination, if you choose, you may allow the employee to continue to be reimbursed for qualifying medical expenses incurred after the termination date. The decision is up to you.

Do unused HRA funds rollover from year to year?

• You can determine whether unused funds roll over from year to year. Rollovers are encouraged because it helps employees take ownership of the account and how it’s managed.

Are there rules that apply to the amount an employer may contribute to an HRA?

• No, there is no set amount an employer must contribute to the HRA.

When does the HRA begin to pay for an employee’s expenses?

• The employer has the choice of allowing the HRA to pay before the employee meets any deductible, or it can be set up so that the employee has to meet a certain amount of out-of-pocket expense before the HRA begins to pay.

Is the HRA allocation based on a calendar year or a rolling plan year?

• The HRA allocation is based on a calendar year to correspond with the medical plan’s deductible. If you purchase an HRA plan mid-year, the first (partial) year’s HRA allocation can be prorated, and begin the full annual allocation on the following January 1.

Can I as employer choose proration for new hires and family status change?

• Yes, monthly proration is available for new hires and family status changes that occur throughout the year.

Can an employee covered by a spouse’s plan still participate in your group’s HRA?

• Yes. However, there can be no “double dipping,” or reimbursement from both plans for the same expense. The spouse of an employee may also be covered by your group’s HRA if they wish as part of family coverage.

Are high-deductible health plans required in order to offer an HRA?

• No, the HRA can be paired with any of our high-deductible or PPO health plans; there are no limitations.   

Can the HRA allocation be set up on a 4-tier structure?

• Yes, you may set up the HRA allocation for Employee, Employee+Spouse, Employee+Child(ren) or Family.

Can I as an employer define the HRA rollover amount?

• Yes, you may limit the amount that may be carried over for an HRA, and you may choose to impose an annual rollover maximum. The total HRA account balance may also be capped if you wish.

What is automatic reimbursement?

• Automatic reimbursement is an optional feature that submits the liability portion of an employee’s health care claim and automatically processes it against available HRA funds. If funds are available, a reimbursement check is then sent to the provider along with any applicable medical coverage payment. Automatic reimbursement is one of the most important and desired features of our HRAs as it eliminates paper work for your employees.

What is an HRA debit card?

• The debit card is an optional feature of the HRA that gives an employee access to their health reimbursement arrangement (HRA) with convenience.  The card can be used whenever an eligible expense is incurred at a qualified provider (such as an office visit or prescription at a pharmacy). With the debit card, funds are transferred from your employee’s HRA directly to the provider or merchant to pay for the expense through the MasterCard network. The card is authorized for use only at qualified merchants and health care providers that accept MasterCard and offer eligible products or services for reimbursement.

May an employer offer both automatic reimbursement and a debit card on an HRA?

• No, an employer has the option of offering either automatic reimbursement or a debit card for employee reimbursement out of the HRA.

Who is eligible to participate in an HRA?

• Employer groups of 2 or more (including current employees and their families) may participate in an HRA. All employees are eligible to participate, with the exception of owners and partners. According to IRS guidelines, anyone with two percent or more ownership in a schedule S corporation, LLC, LLP, PC, sole proprietorship, or partnership may not participate. C-corporation owners and their families are eligible to participate in HRA plans because they are considered to be W-2 common law employees.

May an employer offer both an HRA and FSA?

• Yes, this is permitted. The HRA will pay first, unless the plan specifies that the FSA will pay prior to the HRA. If the HRA is written so that unused amounts carry over from year to year, the employer may want to have the HRA pay first to reduce the amount of the accumulation. One reason to have the FSA pay first is because unused FSA money does not carry over.

Why are HRAs becoming so popular?

• HRAs have become popular because of their success when designing a benefit package which provides quality health care within a manageable healthcare budget.  The regulations provide you with the flexibility you need to tailor an HRA to your budget while fulfilling the needs of your employees.

How does an employer set up an HRA?

• HRAs can be established through BlueCross BlueShield of Tennessee. For details, talk with your agent/broker or call a BlueCross BlueShield of Tennessee representative at 1-800-565-9140.