How Health Reimbursement Accounts Work: A Clear Guide

Health Reimbursement Accounts (HRAs) are powerful financial tools designed to help employees cover medical expenses with tax advantages. Many employers use HRAs as part of their benefits strategy, especially in self-funded health plans. But how exactly do HRAs function, and who benefits most from them?

What Is a Health Reimbursement Account?

A Health Reimbursement Account is a tax-advantaged savings account established by an employer to reimburse qualified medical, dental, vision, or preventive care expenses for employees. Unlike flexible spending accounts (FSAs), HRAs are owned by the employer, and funds typically roll over annually—often with a two-year carryover limit—making them more flexible for long-term health needs.

HRAs are especially valuable in high-deductible health plans (HDHPs), where upfront costs can be significant. Employees deposit pre-tax dollars into the HRA, which the employer contributes based on plan design. Reimbursements cover out-of-pocket costs such as doctor visits, prescriptions, physical therapy, dental cleanings, and vision exams—though wellness programs like gym memberships may be excluded depending on plan rules.

How Do HRAs Benefit Employees and Employers?

For employees, HRAs offer direct financial relief by reducing taxable income and lowering personal medical expenses. Since contributions are made pre-tax, each dollar saved reduces current tax liability, effectively lowering the net cost of healthcare. Employers benefit through predictable healthcare spending, improved employee satisfaction, and enhanced retention—especially in competitive markets where benefits matter.

The IRS sets clear limits: employees cannot exceed $65,000 annually in HRA contributions (2024 rule), aligning with health savings account caps. Employers must follow strict reporting under Form 5500 if managing HRAs, ensuring compliance with federal regulations.

Eligibility and Enrollment Process

Eligibility typically requires active employment, though some HRAs allow enrollment during job transitions if the plan permits. Employees enroll by selecting an HRA option during benefits sign-up or via a dedicated portal. Once enrolled, employees submit claims for eligible expenses—either through receipt uploads or direct provider submissions, depending on plan rules. Reimbursements are processed within weeks, often automatically deposited into the account.

Important: Employers must clearly communicate HRA rules, including covered services, maximum contributions, and documentation needs. Transparency builds trust and reduces errors in claims submission.

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Health Reimbursement Accounts bridge the gap between rising healthcare costs and accessible care. By combining tax efficiency with flexible coverage, HRAs empower employees to manage expenses proactively. Employers gain a strategic tool to support well-being while controlling benefits spend. Whether you’re an employee seeking lower costs or an employer designing competitive benefits, understanding HRAs unlocks real value in today’s healthcare landscape. Start reviewing your current plan today—simple changes can lead to meaningful savings and peace of mind.

CTA: Review your benefits package and consider setting up or optimizing a health reimbursement account to protect your health and budget—contact your HR team to learn more.