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HRAs Can Cut Your Health Costs

Health, Managing Health Insurance
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Whether your boss recently announced a health reimbursement arrangement (HRA) benefit or you already have one, an HRA can help you spend less of your own money on health care.

These plans, which are offered only by employers alongside a health insurance plan, are a way to offset out-of-pocket medical costs for employees. They’re often offered with high-deductible health plans that have low monthly premiums and higher out-of-pocket costs, but not always.

HRAs are not flexible spending arrangements or health savings accounts, known as FSAs or HSAs, which are more common plans that you fund with your own money and use for qualifying medical costs. If you have an HRA, your employer puts company money in an account for you to use instead. This gives your boss a lot more control over how the money is used than in an FSA or HSA. But even with restrictions, an HRA can be a boon, especially if you need a lot of medical care.

» MORE: HSA and FSA: How to know the difference

HRA rules and eligible expenses

Like all medical spending accounts, health reimbursement arrangements come with several rules set forth by the IRS. Money in your HRA cannot come from your paycheck, and under no circumstances can your employer give you the money directly, even if you don’t use it all.

HRA money will probably be gone once your job ends, whether it’s because you quit, retired, got laid off or were fired. The exception is when your employer offers HRAs as a retirement benefit, setting aside money for your medical care after you retire.

You can use HRA money for qualifying medical expenses outlined by the IRS, but your employer decides which of those expenses are eligible. “The HRA is very much controlled by the employer as far as how they want those dollars spent,” says Steven Auerbach, CEO at Alegeus, which administers health accounts like HRAs.

Qualifying expenses may include:

  • Copays and coinsurance for doctors visits.
  • Inpatient or outpatient hospital care.
  • Prescriptions.
  • Diagnostic exams.
  • Dental or vision expenses.
  • Travel related to medical care.
  • Counseling for issues such as obesity, addiction and smoking cessation.
  • Select alternative care, such as a chiropractor’s fee or acupuncture.

Because your company is the owner of the arrangement, your employer can choose which medical costs you use the HRA for and whether unused money rolls over from one year to the next. Employers can also allow you to pay your portion of health insurance premiums with your HRA, which is not a qualified medical expense. Your human resources department should supply you with an explicit list of medical care you can spend HRA money on.

Use your HRA funds when you can

To get the full benefit of your HRA, aim to spend as much of it as you can on any medical services you need. Especially if you were going to pay for it anyway, there’s no downside to using up all of your HRA funds. If you’ve just gotten a new HRA and have been waiting on exams, preventive care or other medical needs, now is the time to plan your upcoming care.

There may not be much of a window to get that care, since HRAs don’t often last at any company for more than a few years, according to Auerbach. Alegeus typically administers HRA plans in the transition from a low- to a high-deductible health plan, Auerbach says, and then they don’t last long after.

“Once people are comfortable with the higher deductible, employers want to get them using their own funds,” Auerbach says, which is when firms tend to shift to health savings accounts. An exception may be service and food industries, where there are high rates of employee turnover, according to the Society for Human Resource Management.

Lacie Glover is a staff writer at NerdWallet, a personal finance website. Email: lacie@nerdwallet.com. Twitter: @LacieWrites.