What You Can Use Your HRA For

Understanding HRA-Qualified Medical Expenses

Woman paying at a pharmacy counter.
You can use the money in your HRA for a lot more than prescription copays. Image © Terry Vine/Getty Images

An HRA (health reimbursement arrangement) is an arrangement between you and your employer, created so that your employer can reimburse you for health care expenses. A health reimbursement arrangement allows your employer to reimburse you for qualified medical expenses without you having to pay income taxes on the reimbursement funds. The caveat here is that, in order to be tax-free, the HRA money can only be used for qualified medical expenses.

If you use it for something that isn’t a qualified medical expense, you have to pay income taxes on it.

What Is a Qualified Medical Expense for an HRA?

Generally, qualified medical expenses are expenses that would be deductible on your federal income taxes if they weren’t reimbursed by your HRA. The complete list of these can be found in IRS Publication 502, but you’ll learn the basics in plain language below.

There are a couple of exceptions to the general rule that HRA qualified medical expenses are the same as tax-deductible medical expenses.

  • The IRS allows you to use funds from your HRA to pay health insurance premiums and long-term care insurance premiums.
  • Your employer can design your HRA to have the exact same reimbursement guidelines as the IRS, or to have stricter reimbursement criteria than allowed by the IRS. However, your employer isn’t allowed to have more lenient reimbursement criteria than the IRS.
     
    For example, the IRS allows the medical expenses of your spouse and dependents to count as qualified medical expenses. Your employer has the right to limit reimbursements from your HRA to your medical expenses alone, excluding your spouse and children’s expenses, because this criterion is stricter than the IRS’s. Your employer cannot allow reimbursements of your ex-spouse’s medical expenses because that would be more lenient than the IRS criterion which limits reimbursements to the expenses of you, your spouse and your dependents.

    HRA-Allowed Medical Expenses in Plain English

    • Long-term care insurance premiums
    • Health insurance deductible, copayments, and coinsurance
    • Health care services your insurance doesn’t cover so you pay for out-of-pocket. This includes:
    • Care provided by a psychologist, psychiatrist, or therapist to treat or prevent a physical or mental problem.
    • Medications
      • Prescription medications.
      • Over-the-counter medications only with a prescription, and only if specifically allowed by your HRA. (This is uncommon). Prior to 2011, OTC medications could be purchased with HRA funds without a prescription, but that changed under the Affordable Care Act.
      • Insulin (even if it's over-the-counter without a prescription) and diabetic supplies like glucometer strips.
    • Dental Care to prevent or treat a dental disease
      • Cleaning by dental hygienist
      • Routine dental exam by dentist
      • Treatments like fillings, root canals, braces, and orthodontics
      • Dentures and denture-care supplies.
    • Vision Care to prevent or treat diseases of the eye or vision problems
      • Optometrist or Ophthalmologist exam
      • Eye surgery to correct vision
      • Glasses or contact lenses for vision correction
      • Contact lens solutions
    • Hearing Care
      • Hearing aids
      • Hearing aid batteries
    • Reproductive care
      • Contraceptives, condoms, IUDs
      • Sterilization surgery
      • In vitro fertilization expenses
      • Pregnancy test kits
      • Birth preparation classes (Lamaze)
      • Breastfeeding supplies
    • Foot care products used to treat a foot ailment
      • Arch supports
      • Moleskin blister prevention pads
      • Bunion cushions
    • First aid  supplies
      • First aid kit
      • Band-Aids, bandages, and wound care products
      • Ace wraps, splints, slings, joint supports
      • Medical thermometer
      • Sunburn cream

    Note that there are many items in that list that are sold over-the-counter. The rules that took effect in 2011 requiring a prescription in order to use HRA funds to purchase over-the-counter medications do not apply to over-the-counter medical supplies that aren't medicines or drugs.

    So things like crutches, bandages, blood pressure monitors, and pregnancy tests can be purchased with pre-tax HRA funds, despite the fact that they're sold without a prescription.

    Expenses You Can’t Use Your HRA Funds For

    Other than health insurance premiums, expenses that aren't used to treat or prevent a medical illness, condition, or ailment generally aren't allowable HRA expenses. Even some medical procedures, if done purely for cosmetic reasons rather than to treat an illness or defect, aren't HRA reimbursable. For example, breast reconstructive surgery after you've had a mastectomy is HRA reimbursable, but breast implants for purely cosmetic reasons are not.

    Personal hygiene items like toothpaste and toothbrushes aren't HRA reimbursable. They're considered to be used for personal hygiene rather than to prevent or treat a medical condition. Items used to promote a healthy lifestyle like dietary supplements, gym memberships, and work-out DVDs aren't eligible for HRA reimbursement, either.

    You can’t use your HRA funds to buy an over-the-counter medication unless you have a physician prescription for it. Even then, your HRA might not allow reimbursement for over-the-counter medication.

    Double-dipping isn't allowed. You can't get reimbursement from your HRA for something your health insurance pays for. Neither can you receive reimbursement from your HRA for a qualified medical expense and use that same medical expense as a tax deduction.

    Finally, remember that your employer has the right to structure your HRA reimbursement rules to be stricter than the IRS’s rules. Ultimately, even if a medical expense is allowable under IRS rules, your employer has the right to refuse to reimburse you for it if that’s how your particular HRA is structured. Your employee benefits office should have a list of the items your HRA will reimburse you for.

    Sources:

    House.gov. Text of the 21st Century Cures Act. November 25, 2016.

    Internal Revenue Service. Affordable Care Act: Questions and Answers on Over-the-Counter Medicines and Drugs.

    Internal Revenue Service. Publication 502 (2017). Medical and Dental Expenses.

    Internal Revenue Service. Publication 969 (2016) Health Savings Accounts and Other Tax-Favored Health Plans.

    IRS Publication 502