Does a health reimbursement account rollover? Good question. Let Take Command clear that up for you, along with a few of the finer details surrounding health reimbursement arrangements. First important detail to remember: HRA stands for health reimbursement arrangement, not health reimbursement account. Let's jump in!
What is a health reimbursement arrangement?
An HRA is not a bank account. This can be a little confusing at first, but it’s actually much simpler. Unlike Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) that are accounts, “HRA” stands for Health Reimbursement Arrangement.
If you're an employee and your boss is offering you reimbursement health insurance like an HRA, it means that they are going to reimburse you for health insurance costs and possibly medical expenses depending on the type of HRA they have chosen. This is great news because it means you can shop for the best plan that fits your needs (you know you want to keep your doctor in network!), and you submit receipts and get reimbursed. This is an alternative to a group plan and means personalized plan choice and portability for you. It means employers reimbursing employees for health insurance and medical expenses.
Sweet!
A health reimbursement arrangement allows employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance or use on medical expenses, tax-free. This means employers get to offer benefits in a tax-efficient manner without the hassle or headache of administering a traditional group plan and employees can choose the plan they want.
→ Check out our post on HRA account pros and cons.
→ Learn more about HRA account rules.
Most common HRAs
QSEHRAs, or Qualified Small Employer Health Reimbursement Arrangements, have been around since 2017. They are HRAs designed specifically for small businesses and are limited to businesses with 50 employees or less. QSEHRA contribution limits for 2021 are $5,300 a year for an individual or $10,700 for a family per year.
ICHRA Plans, or Individual Coverage HRAs, represents a “super-charged” version of QSEHRA with no contribution limits and greater design flexibility with their hallmark ICHRA class function that will appeal to more employers. ICHRA expands the benefits of HRAs to a larger pool of companies, one of our favorite things about ICHRA when we look at ICHRA pros and cons.
How does health reimbursement work?
The mechanics of an HRA are surprisingly simple. At a high-level, employees pay for their own health expenses and you reimburse them. Here’s how it works:
- Employers design their plan and set reimbursement allowances
- Employees pay for their own health insurance and medical bills
- Employees provide proof of their expenses
- Employers reimburse the employee up to the set limit (in the case of the QSEHRA)
The key to note is payments are reimbursements. Employees will pay the insurance company or doctor’s office directly and then submit a claim to get reimbursed for their expenses tax-free.
Do HRAs roll over?
Regarding Health Reimbursement Accounts (HRAs), many potential users and employers ask, "Do HRAs roll over?" The answer is that HRA rollover rules can vary significantly depending on the type of HRA, the employer's policies, and specific plan details. Understanding the nuances of HRA rollovers is essential for employers designing the benefit and employees utilizing it.
Monthly vs Annual Rollover
HRA funds can be structured to roll over monthly or annually, depending on how the employer sets up the plan. In a monthly rollover, any unused funds at the end of the month may carry over to the next month within the same plan year. **Annual rollover** options allow unused funds at the plan year's end to carry over into the next year. This flexibility helps employees manage their healthcare expenses more effectively throughout the coverage period.
Different Ways an Employer May Structure the Rollover
Employers have discretion over structuring HRA rollovers and may choose not to allow rollovers. When rollovers are permitted, employers might limit the amount or set specific conditions under which rollovers occur. For instance, some plans may only allow a percentage of unused funds to roll over, while others might have a cap on the total dollar amount that can be carried over to the next period. These variations make it crucial for employees to understand the specifics of their employer’s HRA rollover rules.
What Happens in the Event of Termination
A common concern is what happens to unused HRA funds upon termination. Typically, unless otherwise specified in the HRA plan document, any unused funds revert to the employer when an employee leaves the company. This is because the employer funds HRAs, and unlike health savings accounts (HSAs), the accounts are not owned by the employees.
Rollover Rules for Different Types of HRAs
While the blog primarily discusses QSEHRAs (Qualified Small Employer Health Reimbursement Arrangements), it's important to note how rollover rules may differ from other types of HRAs. For example:
- Integrated HRAs: Often do not allow rollovers as they are designed to work with a specific health plan each year.
- Excepted Benefit HRAs (EBHRAs): May permit rollovers since they are designed for specific benefits rather than major medical expenses.
Understanding the rollover rules for different types of HRAs can help both employers and employees make informed decisions about their health benefits strategy.
Continuing Coverage Through COBRA
If you leave your company and continue coverage through COBRA, the rules regarding your HRA can vary. If the employer offers COBRA continuation for the HRA, the remaining funds may be accessible to the employee during the continuation period. However, this option depends on the employer’s HRA plan design and whether it includes provisions for COBRA continuation.
To summarize, while HRAs can provide significant flexibility and benefits, questions such as "do HRA funds roll over" and "what happens to unused HRA funds" are determined by specific plan rules set by the employer.
Employees should thoroughly review their HRA plan documents and discuss with their employer or benefits administrator to understand the full scope of their HRA benefits, including rollover options and termination provisions.
What happens to unused HRA funds?
Remember, an HRA is a reimbursement tool, not a savings account. The rollover amounts are allowances that can only be claimed for reimbursement, there are no options for a cash payout of unused funds. At the end of a calendar year, any unclaimed allowance will be lost so it is best to save your receipts and enter your expenses as soon as you can!
Need help making sense of how to get the most out of these tax-friendly tools?
Our team of HRA experts is ready to chat with you on our website. Our award winning HRA administrator platform, our QSEHRA Administrator experts and our ICHRA administrator experts are all at the ready to help you choose what's best for you.
You can also check out our guide on small business tax strategies for more ideas on how to play it smart. In the meantime, check out our new HRA Guide for all the answers!
This post was originally published in 2021 and has been updated with new information and insights for 2023.
