HRA Overview
Health Reimbursement Arrangements (HRAs) are an example of consumer-driven healthcare used to control health costs. Similar to Flexible Spending Account (FSAs), the HRA features a “personal account” under the control of the individual.
HRAs are funded solely by the employer and permit unused amounts to be carried over from year to year (no “use it or lose it” as with FSAs). The IRS specifically prohibits the use of employee contributions to the HRA.
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HRA vs. FSA
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Health Reimbursement Account (HRA)
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Flexible Spending Account (FSA)
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Who can contribute?
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Employer only
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Employers & employees
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Do balances carry over year to year?
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Yes (can include carryover limits)
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No
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Permissible reimbursements
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Qualified Medical Expenses
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Qualified Medical Expenses
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Can pay health insurance premiums?
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Yes (Subject to Plan Rules)
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No
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Tax status of employer contributions
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Not subject to federal income or employment taxes
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Not subject to federal income or employment taxes
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Tax status of employee contributions
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Employees cannot contribute to HRA
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Employee contributions are pre-tax salary reduction basis not subject to employment taxes
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Funding Limits
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No legislative limits – Employer set
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Dependent Care FSAs are capped at $5,000 annually. Healthcare FSA limits are set by employer. Starting January 1, 2013, annual elections will be capped at $2,500 (then adjusted to inflation each year) due to PPACA.
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Distributions
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Qualified Medical Expenses
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Qualified Medical Expenses
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