How HRAs Work

What an HRA Isn’t
The alphabet soup of health insurance benefits can confuse anyone. HRAs are not health savings accounts (HSAs) or flexible spending accounts (FSAs), each of which has its own set of rules and benefits for how it can be used to pay for qualified medical expenses. Here’s a quick rundown, since these terms can get confusing.

HSAs must be used with an HDHP, contributions can come from both employers and employees, the balance can be invested and rolled over from year to year and the account goes with you when you change jobs. (For related reading, see How to Use Your HSA for Retirement.)

FSAs don’t have to be used with an HDHP, contributions come only from employee payroll deductions and the balance can’t be invested and doesn’t earn interest. FSA balances must be used in the current plan year, though some employers allow small amounts to roll over or give employees a grace period at the beginning of the following year to use up the balance. Also, FSAs don’t go with you when you change jobs.

Who Funds One?
HRAs, on the other hand, are funded entirely with employer money. An HRA is not an account; it’s a reimbursement arrangement between you and your employer. You can’t invest the balance and it doesn’t earn interest. If you participate in an HRA, you won’t see any deductions from your paycheck.

Instead, your employer decides how much it is willing to reimburse you for healthcare costs on a monthly or annual basis. If you still have a balance at the end of the year, it may roll over as long as your employer continues to offer the HRA and you continue to participate, but it may not: That decision is up to your employer, too.

How to Participate
To participate in an HRA, you must opt in during your employer’s open enrollment period. If you have a qualifying life event, you can sign up outside of open enrollment. Spouses and children who participate in your employer’s health insurance plan can also be reimbursed through an HRA. Unfortunately, if you’re self-employed, you can’t use an HRA.

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