How it works

Employees are given money from their employer to spend on out-of-pocket medical expenses. All employer contributions to HRAs that meet with IRS rules are 100% tax deductible to the employer and tax-free to the employee. When an employer augments a benefits package with an HRA, it sends a strong message to employees that their employer cares about their health and well-being, and it helps employers attract and retain staff. Benefits for employers and employees include:

  • Control - Employers decide how much to contribute and what medical expenses the funds can be used for. Employees control how best to spend their healthcare dollars.
  • Tax savings - Employer contributions are tax-deductible, lowering their payroll taxes. Funds are also tax-free to employees, so they don’t increase their income tax burden.
  • Flexibility - Employers choose whether to allow funds to carry over each year. And the money stays with the organization when employees leave.
  • Productivity - Healthy and happy employees are more engaged in their work and are better for the employer’s bottom line.

With an HRA, employers provide funds for each employee to pay for out-of-pocket medical costs. Employers can choose whether to allow the funds to be used for all qualified medical expenses approved by the IRS or a subset of qualified expenses.

When employees incur IRS-qualified medical expenses, they submit claims for reimbursement from their HRA. All claims have to be substantiated or verified as an eligible expense. Submitting claims can be done online, on our mobile app, or by mail. Having a debit card with the HRA provides easy access to HRA dollars, especially at pharmacies and doctors’ offices.

Plan design options for an HRA

There are no health plan deductible or out-of-pocket requirements for an HRA, but they are offered with a high-deductible health plan. Employers determine the plan design:

  • Contribution Schedule – Funds can be made available up front or on a monthly basis.
  • Reimbursable Expenses – The HRA can either reimburse all 213d expenses, only what is covered under their health plan, or specific subsets like pharmacy, dental, and vision.
  • Order of Reimbursement – The HRA can reimburse first dollar or after the employee pays for a defined amount of reimbursable expenses.
  • Rollover – Unused HRA dollars can be rolled over to the next plan year, based on a flat dollar amount or percentage.

Employers can offer a Limited Purpose HRA for reimbursement of dental and/or vision expenses. This is most common when paired with a Health Savings Account (HSA) and is a great option for employees with children needing glasses or orthodontia.

Why we ask for substantiation

The Internal Revenue Service (IRS) requires plan administrators to validate that an HRA is used only for eligible healthcare expenses. When an employee submits a claim for reimbursement from their HRA, they’ll need a detailed receipt from their pharmacy, doctor, or other healthcare provider, or an Explanation of Benefits (EOB) from their health plan. These must include:

  1. The date of service or purchase;
  2. The name of the provider, such as a doctor’s office or pharmacy;
  3. The service or item purchased; and
  4. The amount the employee paid or is responsible for paying.

If a receipt doesn’t include all of the necessary information, we have to deny the claim. We’ll notify the employee by letter (or by email, if they choose), and tell them how to resubmit the claim with the proper documentation.

Man sitting at his desk, playing with a pencil

Debit cards and receipts

Most of the time, when an employee uses their debit card, the purchase is automatically substantiated. This means the provider’s merchant system sends us the information we need to verify that the card was used for an eligible expense. There are times when we can’t verify that the card was used for an eligible expense. When that happens, we’ll send the employee a notice asking for a receipt or other documentation and instructions on how to send it back to us.

Document services

As a service to employers, HSA Bank offers the faciliation of ERISA Plan Documentation as well as Non-Discrimination Testing for Health Reimbursement Arrangements.

ERISA plan documentation

HSA Bank can facilitate the generation and maintenance of the written Plan Document and Summary Plan Description for HRA plans. The Employee Retirement Income Security Act (ERISA) requires employers who offer welfare benefit plans to create these documents and provide them to employees. These documents are a crucial part of any benefit program offered by employer groups as they communicate the plan benefits and how each plan operates. All documents are stored electronically for later reference and include a date and time stamp of the original or any subsequent revisions.


Non-discrimination testing

HSA Bank can facilitate the Non-Discrimination Testing (NDT) for HRA plans. The IRS requires employers to perform NDT each year. The reason for NDT is to prevent key and highly compensated employees from receiving a disproportionate amount of employer provided tax-free benefits as compared to the rank-and-file employees. NDT is an important component of plan compliance. Failure of an employer to satisfy the nondiscrimination testing requirements or take the necessary corrective measures can result in the inclusion of the discriminatory benefits in the income of highly compensated employees.