Why Do Doctors Recommend HRAs? Benefits, Rules, and How They Work

Written & Supervised By

Preventive Medicine and Public Health Specialist | 40+ Years Experience

Medically Reviewed

Dr. Jose Rossello, MD, PhD, MHCM

Preventive Medicine & Public Health Specialist

Last Reviewed: June 21, 2026

Doctors recommend HRAs because these employer-funded accounts help patients access healthcare services while reducing out-of-pocket costs. [Health Reimbursement Arrangements (HRAs) reimburse employees for their medical expenses](https://www.healthcare.gov/job-based-help/) through a structured account-based health plan. Physicians support HRAs as a practical tool that removes financial barriers to necessary medical care, allowing patients to seek treatment when they need it rather than delaying care due to cost concerns.

A group of doctors discussing health data on a digital tablet in a medical office.

These arrangements benefit both healthcare providers and patients by creating a clear pathway for covering qualified medical expenses. When patients have access to HRA funds, they are more likely to follow through with recommended treatments, preventive care, and prescription medications. This improves health outcomes and helps doctors deliver more consistent care.

HRAs also simplify the billing process for medical practices. Instead of patients struggling to afford copays or deductibles, the reimbursement system provides a straightforward method for covering costs. Understanding how HRAs work helps patients maximize their healthcare benefits and maintain better relationships with their medical providers.

Table of Contents

Key Takeaways

HRAs are employer-funded accounts that reimburse employees for qualified medical expenses and reduce financial barriers to healthcare
Doctors recommend HRAs because they help patients access necessary treatments without delaying care due to cost concerns
HRAs differ from HSAs and FSAs in ownership, funding, and how they can be used for medical expenses

Core Concepts: What Is a Health Reimbursement Arrangement (HRA)?

A doctor talking with a patient in a medical office, showing healthcare documents on a tablet.

A Health Reimbursement Arrangement (HRA) is an employer-funded account that helps employees pay for medical costs. The employer sets aside money each year for workers to use on health expenses.

Key Features of HRAs:

100% employer-funded – employees don’t contribute their own money
Tax-advantaged – employers get tax deductions and employees receive tax-free reimbursements
Flexible spending – covers premiums, deductibles, copays, and other medical costs
Employer-controlled – companies decide how much to contribute and what expenses qualify

An HRA works differently than a health savings account. Employees submit receipts for approved medical expenses and get reimbursed up to their available balance. The money stays with the employer, not the employee.

Health reimbursement arrangements require employees to have qualifying health insurance coverage. This can include individual health insurance plans or Medicare. Some HRAs also require enrollment in a high-deductible health plan.

Employers design their HRA programs based on company needs. They set annual contribution amounts, determine eligible expenses, and establish rollover rules. Some companies let unused funds carry over to the next year while others do not.

The IRS approves HRAs as official medical reimbursement plans. This approval gives both employers and employees important tax benefits. Employees receive reimbursements without paying income tax on the money.

How HRAs Function in Healthcare Settings

Doctors collaborating and reviewing health data on a digital tablet in a modern healthcare setting.

Employers fund these accounts and set the rules for how employees can use them. An administrator handles the paperwork and payments while specific documents outline what the plan covers.

Employer Funding and Employee Reimbursement

Employers decide how much money to put into each employee’s HRA. They own the account and can set different amounts based on employee categories like full-time versus part-time workers. The money stays with the employer until an employee submits a claim.

Employees pay for their medical expenses first. They then submit receipts or bills to get their money back. The employer reimburses employees for their medical care expenses tax-free.

The employer controls which expenses qualify for payment. Common covered items include insurance premiums, doctor visits, prescription drugs, and dental care. Some employers allow HRAs to cover deductibles and copays while others focus only on premium costs.

Unused funds typically stay in the account from year to year if the employer allows it. However, employees lose access to the money if they leave the company since the employer owns the HRA.

The Role of an HRA Administrator

An HRA administrator manages the daily operations of the plan. This can be a third-party company or the employer’s internal benefits team. The administrator processes all reimbursement requests and verifies that expenses meet plan rules.

Administrators review submitted claims to ensure expenses qualify under the plan document. They check receipts and explanation of benefits forms. They also handle payments to employees and maintain records for tax purposes.

The administrator answers employee questions about eligible expenses and claim procedures. They track how much money each employee has available and used. They also produce reports for employers to monitor plan spending and participation rates.

Key Plan Documents and Compliance

The HRA plan document serves as the legal foundation for how the arrangement works. It specifies contribution amounts, eligible expenses, and participation requirements. Employers must provide this document to all participants.

Employees receive a Summary Plan Description that explains the plan in simple terms. This notice tells workers how to file claims and what expenses qualify for reimbursement. The document also outlines appeal procedures if claims get denied.

Plans must follow federal rules including ERISA, HIPAA, and the Affordable Care Act. Employers need to provide required notices within specific timeframes. They must also comply with nondiscrimination rules that prevent favoring highly paid employees.

Record keeping requirements include maintaining claim files and financial records for several years. Employers must file certain reports with the Department of Labor depending on plan size and structure.

Types of HRAs: Understanding Your Options

Employers can choose from several types of HRAs to meet their workforce needs. The three main options differ in company size requirements, contribution limits, and how employees use the funds.

Qualified Small Employer HRA (QSEHRA)

The Qualified Small Employer HRA works specifically for businesses with fewer than 50 employees. These companies cannot offer a group health insurance plan if they provide a QSEHRA.

Employers set aside a fixed amount of money each year that employees can use for qualified medical expenses. In 2026, contribution limits are set by the IRS and adjusted annually for inflation. The funds reimburse employees for individual health insurance premiums and out-of-pocket medical costs.

All eligible employees must receive the same offer, though employers can vary contributions based on family size. Employees need to have individual health coverage that meets minimum essential coverage standards. The QSEHRA gives small businesses a way to help with healthcare costs without managing a traditional group plan.

Individual Coverage HRA (ICHRA)

The Individual Coverage HRA allows employers of any size to reimburse employees for individual health insurance premiums and medical expenses. Unlike QSEHRA, there are no maximum contribution limits set by law.

Employers can offer ICHRA to different classes of employees with varying allowance amounts. These classes include full-time workers, part-time workers, seasonal employees, and employees in different geographic locations. Each employee must maintain individual health coverage.

Companies can run an ICHRA alongside a traditional group health plan as long as employees in different classes receive different options. This flexibility makes ICHRA useful for businesses with diverse workforces. Employees shop for their own health insurance plans and submit receipts for reimbursement.

Excepted Benefit HRA (EBHRA)

The Excepted Benefit HRA provides up to $2,150 annually (as of 2026) for medical expenses not covered by primary health insurance. Employers must offer a traditional group health plan to provide an EBHRA.

This HRA type covers dental and vision care, short-term insurance premiums, and copayments. It cannot reimburse premiums for the primary group health plan. The EBHRA works as a supplemental benefit to help employees with additional healthcare costs.

Employees can decline the primary group coverage and still participate in the EBHRA. The contribution limit is adjusted periodically for inflation. Companies use this option to enhance their existing benefits package without replacing core health coverage.

Eligibility Requirements and Enrollment Considerations

Understanding the eligibility criteria for Health Reimbursement Arrangements helps both employers and employees navigate the enrollment process. Different types of HRAs have specific requirements that determine who can participate.

For QSEHRA plans, employers must have fewer than 50 full-time employees. All employees who meet certain employment criteria must be offered the same benefit. The employer cannot pick and choose which workers receive coverage.

ICHRA plans work differently. They’re available to employers of any size to reimburse their employees for individual health insurance premiums. Employers can create different classes of employees based on factors like full-time versus part-time status or geographic location.

Key eligibility factors include:

Employment status (full-time, part-time, seasonal)
Job classification or position type
Geographic work location
Whether the employee has individual health insurance coverage

Employees typically need to have qualifying health insurance to receive reimbursements for premiums. For ICHRA, this means coverage that meets minimum essential coverage requirements. QSEHRA allows reimbursement for a broader range of plans, including coverage through a spouse’s or parent’s plan.

The enrollment process becomes easier because HRAs prompt a Special Enrollment Period. This gives employees 60 days to sign up for individual health insurance outside the normal open enrollment window. They don’t need to wait for a specific time of year to start using their benefits.

Employers set the start date for their HRA plan. They aren’t tied to traditional open enrollment periods.

What HRAs Cover: Qualified Medical Expenses and Beyond

HRAs can reimburse medical visits, prescriptions, dental, vision, mental health, insurance premiums, and equipment. The employer determines which expenses qualify for reimbursement within IRS guidelines, though most plans follow standard rules for what counts as an allowable medical cost.

Out-of-Pocket Medical Expenses

HRAs cover a wide range of out-of-pocket medical expenses that employees pay directly. These include doctor visits, hospital stays, lab tests, and emergency room care. Prescription medications qualify for reimbursement under most plans.

Dental and vision care also fall under qualified medical expenses. This includes routine cleanings, fillings, crowns, eyeglasses, contact lenses, and eye exams. Mental health services like therapy sessions and counseling are eligible expenses as well.

Medical equipment and supplies qualify for HRA reimbursement. Examples include wheelchairs, crutches, blood pressure monitors, and diabetic testing supplies. Over-the-counter medications may be eligible if prescribed by a doctor.

Health Insurance Premiums

Individual health insurance premiums can be reimbursed through certain types of HRAs. An individual coverage HRA specifically reimburses monthly premiums for employees who purchase their own health insurance plans. Medicare Parts A, B, and C premiums are also eligible for reimbursement.

COBRA premiums qualify as reimbursable expenses under HRA plans. Long-term care insurance premiums may be covered depending on the employer’s plan design. Some HRAs also reimburse dental and vision insurance premiums purchased separately from medical coverage.

IRS Guidelines for Allowable Costs

The IRS sets rules for what qualifies as a medical expense under HRAs. Employees typically don’t have to pay state or federal taxes on HRA reimbursements for qualified medical expenses. The IRS requires proper documentation to verify that expenses are legitimate medical costs.

Cosmetic procedures generally don’t qualify unless medically necessary. General health items like gym memberships and vitamins are not covered. The IRS requires different types of documentation depending on the expense, such as receipts, invoices, or explanation of benefits forms from insurance companies.

Tax Advantages of HRAs for Employers and Employees

A doctor explaining health benefits to a group of adults in a modern office.

HRAs function as tax-advantaged accounts that benefit both employers and employees through tax-free contributions and reimbursements. Employers save money by deducting HRA contributions as business expenses while avoiding payroll taxes, and employees receive healthcare funds without paying income tax on those amounts.

Tax-Free Reimbursements

Employer contributions to HRAs are completely tax-deductible as a business expense. The company does not pay payroll taxes on money allocated to employee HRAs, which means they avoid Social Security, Medicare, and unemployment taxes on these amounts.

Employees receive an even greater advantage. They do not pay federal income tax on HRA reimbursements for qualified medical expenses. The money comes to them tax-free, effectively increasing the value of their compensation package.

HRA reimbursements remain tax-free as long as employees use them for qualified medical expenses defined by the IRS. These expenses include deductibles, copayments, prescription medications, and other approved healthcare costs. The funds can cover medical expenses for the employee, their spouse, and dependent children under age 27.

Payroll Implications

Unlike salary or wages, HRA contributions do not appear on an employee’s W-2 as taxable income. Employers fund HRAs entirely from company assets without requiring employee contributions through payroll deductions.

This structure differs from flexible spending accounts or health savings accounts where employees often contribute their own pre-tax dollars. With an HRA, the employer provides all funding directly.

The absence of payroll deductions simplifies administration for both parties. Employees do not see their take-home pay reduced, and employers handle all contributions separately from regular payroll processing.

Interaction with Premium Tax Credit

Employees who have access to an affordable HRA that covers individual insurance premiums may lose eligibility for the premium tax credit on the Health Insurance Marketplace. The IRS considers certain HRAs, particularly Individual Coverage HRAs, as affordable employer-sponsored coverage.

If an employee’s HRA is deemed affordable based on federal guidelines, they cannot claim premium tax credits for Marketplace insurance. The affordability test compares the employee’s required contribution for self-only coverage to their household income.

Employees need to evaluate whether accepting HRA benefits provides more value than purchasing subsidized Marketplace coverage with premium tax credits.

HRAs vs. HSAs and FSAs: Key Differences

Understanding the differences between HRAs, HSAs, and FSAs helps patients choose the right account for their medical expenses. Each account has distinct rules about who funds it, who owns the money, and what happens when someone changes jobs.

Health Savings Account (HSA)

A health savings account requires enrollment in a high-deductible health plan to qualify. The account holder funds the HSA through pre-tax payroll deductions, though employers and family members can also contribute.

The money in an HSA belongs to the account holder permanently. It stays with them even when they change jobs or retire. Any unused funds roll over year after year with no limit on total savings.

HSAs offer tax-free contributions, growth, and withdrawals for qualified medical expenses. Account holders cannot use HSA funds to pay insurance premiums. The IRS sets annual contribution limits that typically change each year, with separate maximums for individuals and families.

Flexible Spending Account (FSA)

A flexible spending account is established through an employer but doesn’t require a specific health plan. Both employees and employers can contribute through pre-tax payroll deductions.

The key difference is the “use it or lose it” rule. FSA funds must be spent within the plan year or the money disappears. This makes it important to estimate annual medical expenses carefully and avoid contributing more than can be spent.

FSAs cannot be used to pay health insurance premiums. They only cover out-of-pocket expenditures and qualified medical expenses. The IRS caps the amount that can be contributed each year. When someone leaves their job, they typically lose access to remaining FSA funds since the employer controls the account.

High-Deductible Health Plan (HDHP)

A high-deductible health plan is required to open and contribute to an HSA. The IRS sets minimum deductible amounts that HDHPs must meet each year.

HDHPs typically have lower monthly premiums than traditional health plans. Patients pay more out-of-pocket before insurance coverage begins. This structure works well for people who pair the plan with an HSA to save for medical costs.

Some HRAs can be used alongside HSAs if specific IRS rules are followed. The HDHP must remain in place for continued HSA eligibility, though the account itself stays with the owner even after changing to a different plan type.

Administrative Process: Claims, Documentation, and Reimbursement

Healthcare professionals discussing medical documents and claims in a modern medical office.

Employees submit claims with proper documentation showing five required elements, and employers verify these details before processing reimbursements. The explanation of benefits serves as key proof of out-of-pocket costs after insurance coverage applies.

Submitting Expenses

Employees must provide specific documentation when requesting HRA reimbursement for medical expenses. Each claim requires five essential elements: the provider’s name, date of service, recipient of service, description of the item or service, and the amount paid.

The provider’s name refers to where the employee received care. This could be a doctor’s office, hospital, pharmacy, or insurance company for premium costs.

The date of service shows when the employee received treatment or purchased an item. This date differs from the billing date or submission date. It confirms the expense occurred during the plan year and prevents duplicate claims.

Documentation must identify who received the service. This matters when dependents use the benefit. If multiple family members appear on one receipt, employees should submit separate claims for each person.

The expense description identifies what service or item the employee purchased. For non-traditional medical items like supplements or massage therapy, employees need a doctor’s note proving medical necessity.

Role of Explanation of Benefits (EOB)

The explanation of benefits documents what an employee owes after their health insurance processes a claim. Insurance companies send EOBs after paying their portion of medical services.

An EOB shows the total charge, the insurance company’s payment, and the patient’s responsibility. Employees can only receive HRA reimbursement for their out-of-pocket costs like copayments and deductibles. They cannot claim amounts their insurance already covered.

This document serves as acceptable proof for HRA claim submissions along with itemized receipts and invoices. The EOB naturally contains all five required elements that employers must verify before approving reimbursements.

Tracking Usage and Balances

Employers set maximum allowance amounts for each employee based on their HRA plan design. Employees can submit claims up to this limit throughout the plan year.

Each approved reimbursement reduces the remaining balance in an employee’s account. Rules for tracking and processing vary by employer but generally require systematic record-keeping of all transactions.

The IRS requires employers to maintain all HRA documentation for at least seven years. This includes every submitted receipt, invoice, and EOB that supported approved reimbursements.

Many employers use benefits administration software to handle documentation review and balance tracking automatically. These systems notify employees of their remaining allowances and send alerts when claims need approval.

HRA Benefits and Limitations in Clinical Practice

Doctors in a medical office reviewing patient health data on a tablet during a team discussion.

Health Reimbursement Arrangements offer specific advantages for managing patient care costs while presenting certain restrictions that affect how doctors and patients interact with healthcare benefits. Understanding these factors helps medical practices guide patients toward better financial decisions about their care.

Reducing Employee Healthcare Costs

HRAs help employers control healthcare expenses by setting fixed contribution amounts each year. Patients with these arrangements can use employer-funded dollars to pay for deductibles, copays, and routine doctor visits.

The cost reduction benefits extend to prescription medications and medical supplies. Employees pay nothing out of pocket for covered expenses until they exhaust their HRA balance. This means patients are more likely to seek preventive care and follow treatment plans.

Doctors see improved patient compliance when HRA funds cover medical expenses like blood pressure monitors and glucose testing supplies. Unused funds may roll over year to year depending on the employer’s plan design. Patients build up reserves for future medical needs, which encourages them to maintain ongoing care relationships with their physicians.

Flexibility in Benefit Design

Employers design HRAs to match their workforce needs and budget constraints. The IRS and individual employers decide which medical expenses qualify for reimbursement under each arrangement.

Medical practices encounter different HRA structures across their patient population. Some plans reimburse network doctors directly while others require patients to submit receipts. A third option uses online portals where providers receive payment automatically.

Common reimbursement categories include:

Medical payments (hospital expenses, dental care, vision care)
Prescription medications
Medical equipment and supplies
Preventive care services

This flexibility allows doctors to work with patients who have varying coverage levels. Plans can emphasize preventive care or focus on chronic disease management based on employer priorities.

Potential Drawbacks and Limitations

Employees cannot contribute their own money to HRAs, which limits how much coverage patients have available. Patients must maintain separate health insurance coverage to qualify for an HRA at all.

The employer owns and controls the account. Employees lose access to remaining funds if they leave their job. Doctors cannot assume patients will have consistent HRA coverage year over year.

Patients cannot withdraw HRA funds in advance to pay for upcoming procedures. They must either pay upfront and seek reimbursement or wait for direct provider payment. This creates cash flow challenges for patients facing expensive treatments.

Record-keeping requirements add administrative burden for both patients and medical offices. Patients need detailed receipts or Explanation of Benefits forms for every claim. Medical practices must verify coverage details separately for each employer’s HRA design.

Best Practices for Using HRAs Effectively

Health care providers get the most value from HRAs when they follow proven guidelines. Choosing a thorough, comprehensive HRA with evidence-based questions helps ensure accurate results.

Key Implementation Steps

Doctors should integrate HRAs into their regular practice workflow rather than treating them as separate activities. The assessment works best when providers review results with patients during face-to-face visits. This allows for immediate discussion of health risks and treatment options.

Data Quality Requirements

All diagnoses identified through HRAs must meet strict documentation standards. Providers need to record findings in the patient’s medical chart during a clinical encounter. This documentation supports risk adjustment requirements that Medicare Advantage plans must follow.

Follow-Up Actions

HRAs alone don’t create better health outcomes without proper follow-up care. Doctors should use assessment results to make case-management referrals when needed. They can also create personalized care plans based on identified risk factors.

Patient-Centered Approach

The most effective HRAs provide useful information to both providers and patients. When patients understand their results, they become more engaged in their own health management. Providers should explain findings clearly and answer common questions about the assessment process.

Regular completion of HRAs helps doctors track changes in patient health over time. This ongoing monitoring allows for early detection of new conditions and adjustment of treatment plans as needed.

Frequently Asked Questions

HRAs are employer-funded accounts that reimburse workers for qualified medical costs, with specific rules about eligible expenses, account types, and how they interact with other health savings options.

How does a Health Reimbursement Arrangement (HRA) work for reimbursing medical expenses?

Health Reimbursement Arrangements (HRAs) are account-based health plans that employers fund to help employees pay for medical costs. The employer sets aside money for each worker, and employees use those funds to pay for approved healthcare expenses.

When an employee has a qualified medical expense, they can pay with an HRA payment card if their plan provides one. If they pay out of pocket first, they can submit receipts and request reimbursement from their HRA.

Employees must keep all receipts for their records. The employer decides how much money to contribute each year and which expenses qualify for reimbursement.

What expenses can typically be reimbursed through an HRA?

HRAs can reimburse most medical expenses that the IRS considers qualified healthcare costs. These include doctor visits, hospital stays, prescription medications, and lab tests.

Many plans also cover dental care, vision services, and medical equipment. Some employers allow HRAs to pay for health insurance premiums.

The specific expenses covered depend on how the employer sets up the plan. Each company can choose which costs qualify for reimbursement within IRS guidelines.

What are the main types of HRAs, and how do they differ?

Individual Coverage HRA (ICHRA) allows employers of any size to reimburse employees for individual health insurance premiums and medical expenses. Workers buy their own insurance plans, and the employer reimburses them through the HRA.

Qualified Small Employer HRA (QSEHRA) is designed for small businesses with fewer than 50 employees. It has annual contribution limits set by the IRS and can reimburse both premiums and medical expenses.

Group Coverage HRA works alongside a traditional group health plan. Employees must enroll in the employer’s group insurance to access HRA funds for out-of-pocket costs.

Excepted Benefit HRA (EBHRA) provides limited reimbursement for specific expenses like dental and vision care. It cannot pay for major medical expenses or premiums for comprehensive coverage.

Can you have an HRA and an HSA at the same time, and what are the rules?

Having both an HRA and a Health Savings Account (HSA) at the same time is possible in certain situations. The HRA must be designed as an HSA-compatible plan or a limited-purpose HRA.

A limited-purpose HRA only covers specific expenses like dental and vision care. This design prevents it from conflicting with HSA eligibility rules.

To contribute to an HSA, a person must be enrolled in a high-deductible health plan. If their HRA provides general medical coverage before they meet their deductible, they cannot contribute to an HSA.

How can you tell if you have an HRA through your employer or health plan?

Employees can check their benefits documents or enrollment materials from their employer to see if an HRA is offered. The human resources department can confirm HRA availability and provide account details.

Many employers send welcome packets or cards that explain the HRA benefits. Workers may receive a payment card specifically for their HRA account.

Employees can also log into their benefits portal or contact their benefits administrator. The plan documents will show the contribution amount and covered expenses.

How does an HRA compare to an HSA in terms of eligibility, funding, and benefits?

Only employers can fund HRAs, and the money belongs to the company. HSAs allow both employer and employee contributions, and the employee owns the account completely.

HRAs require an employer to offer them, while anyone with a high-deductible health plan can open an HSA. HSA funds roll over each year and stay with the employee even after leaving their job.

With HRAs, employers decide whether unused funds carry over to the next year. Some plans allow rollover while others do not.

HSA contributions are tax-deductible for the account holder, and withdrawals for qualified medical expenses are tax-free. HRA reimbursements are also tax-free, but employees cannot contribute their own money to these accounts.

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Dr. Rossello is a medical doctor specializing in Preventive Medicine and Public Health. He founded PreventiveMedicineDaily.com to provide evidence-based health information supported by authoritative medical research.

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