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does a health reimbursement account rollover

Does a health reimbursement account rollover?

Do you have questions about some of the particulars of your health reimbursement account? Is one of them, “Does a health reimbursement account rollover?” 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 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.

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.

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.  

ICHRAs, 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.

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:

  1. Employers design their plan and set reimbursement allowances
  2. Employees pay for their own health insurance and medical bills
  3. Employees provide proof of their expenses
  4. 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.

Does a health reimbursement account rollover?

The good news with an HRA is that any unclaimed reimbursement allowance rolls over to the next month and accumulates to build up a balance of unclaimed reimbursements until the end of the calendar year. The balance will start back at zero in January. This also means if you have a month of larger expenses, you can receive a reimbursement larger than your monthly allowance if you have a balance of unclaimed funds saved up.

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. You can also check out our guide on small business tax strategies for more ideas on how to play it smart.


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