Your HRA (Health Reimbursement Arrangement) becomes inactive when you leave your job, and any unused funds typically stay with your employer. Unlike a personal health savings account that you own, your HRA belongs to the company, meaning you lose access to remaining balances in most cases. The rules differ based on your HRA type and your company’s specific plan design, but understanding these details helps you make smart decisions before you leave.
What You’ll Learn
🎯 How HRAs work and why they’re different from other health accounts
đź’Ľ What happens to your HRA money when you quit or get fired
đź“‹ Steps to take before leaving your job to protect your health benefits
🔄 How to continue coverage with COBRA and what it costs
âť“ Common questions about HRAs, taxes, and your rights as a former employee
Understanding Your HRA: The Foundation
A Health Reimbursement Arrangement is an employer-funded account that reimburses you for qualified medical expenses. Your employer contributes money to your HRA, and you use those funds to pay for healthcare costs like doctor visits, prescriptions, and dental work. The IRS sets strict rules about what counts as a qualified expense, and if you use money for anything else, you face taxes and penalties.
HRAs are not your money—they belong to your employer. This is the key difference between an HRA and a Health Savings Account (HSA), which you own personally. Because the employer owns the HRA, they can set the rules about what happens when you leave, including whether you keep any unused funds or lose them entirely.
The Four Types of HRAs and What They Mean When You Quit
Individual Coverage HRAs (ICHRAs) allow employers to give employees money to buy their own health insurance on the individual market. If you quit and have an ICHRA, your employer stops funding it immediately, but the coverage itself doesn’t end unless you cancel it. You can keep your individual plan active, but you have to pay the premiums yourself from that point forward.
Qualified Small Employer HRAs (QSEHRAs) are for companies with fewer than 50 full-time employees. These HRAs work similarly to ICHRAs—the employer contribution stops when you leave, but your coverage doesn’t automatically end. You’ll need to pay the remaining premiums out of your own pocket or through another source.
Excepted Benefit HRAs cover things like vision, dental, and wellness services but not major medical care. When you quit, excepted benefit HRAs typically end with your employment, and you lose access to those funds. These accounts usually don’t have continuation options like COBRA.
Retiree HRAs are specifically for people who have retired from the company. If you quit before retirement age, retiree HRA benefits don’t apply to you. Once you reach retirement age (usually 65), the employer may allow you to tap into these funds for Medicare-related expenses.
What Actually Happens to Your HRA Money When You Leave
The moment you resign or get terminated, your employer stops making contributions to your HRA. Any remaining balance in your account typically stays with the company—this is called forfeiture. Most employers keep unused HRA funds; they don’t give them back to departing employees. However, some employer plans allow employees to carry over balances to the next year, though this option is rare.
The timing of your departure matters. If you quit on the 15th of the month, your HRA usually stops working immediately or at the end of that pay period, depending on your plan. Any claims you submit after your employment ends may be denied, even if the medical services occurred while you were still employed. You need to submit all receipts and claims before your final day to ensure reimbursement.
A few employers offer COBRA continuation for HRAs, which allows you to keep the same coverage for up to 18 months. However, you pay the full premium plus a 2% administrative fee, which makes it expensive. Not all HRA plans qualify for COBRA, so you need to check with your HR department about whether your specific plan allows it.
The Federal Law That Controls Your HRA
The Employee Retirement Income Security Act (ERISA) governs most employer health plans, including HRAs. ERISA requires that plan documents clearly state what happens to your HRA when you leave the company. If your employer’s plan document says you forfeit unused funds, that’s what happens—there’s no federal requirement to let you keep the money.
The Internal Revenue Code Section 223 sets rules for health savings accounts, but HRAs operate under different rules. The IRS allows employers to set their own forfeiture rules as long as they apply equally to all employees. This means your employer has significant power in deciding whether you keep your HRA money.
State laws rarely override federal rules for HRAs, but some states have passed laws requiring employers to offer specific HRA options or protections. For example, some states require employers to clearly disclose forfeiture policies in writing before employees leave. You should check your state’s labor department website to see if additional protections apply.
Three Common Scenarios: What Happens in Real Situations
Scenario 1: You Leave a Job with $3,000 in Your HRA
Marcus works for a mid-size marketing firm with an ICHRA. He has $3,000 remaining in his HRA account when he gets a job offer from a competitor. On his last day of work, Marcus submits three dental invoices ($1,200 total) that he had been holding. His employer processes these claims before his coverage ends, reimbursing him $1,200. The remaining $1,800 stays with the company—Marcus loses it.
| Action | Consequence |
|---|---|
| Submit all receipts before your last day | Get reimbursed for legitimate medical expenses |
| Leave money in the account after quitting | Forfeit remaining balance to employer |
| Try to claim expenses after employment ends | Claim gets denied |
Scenario 2: You Get Fired and Have Ongoing Medical Treatment
Sarah works at a retail company with an Excepted Benefit HRA covering dental work. She’s fired mid-month and has an appointment scheduled for a root canal in three days. The plan document states that coverage ends immediately upon termination. Sarah tries to submit the dental bill to her HRA, but it gets rejected because her coverage ended when she was fired—even though the appointment was scheduled before termination. The $2,500 root canal now comes completely out of her pocket.
| Action | Consequence |
|---|---|
| Schedule medical appointments after quitting | Pay out of pocket; HRA won’t cover it |
| Get medical done before you leave | Submit receipt quickly for reimbursement |
| Ask HR for coverage extension | Usually denied unless COBRA is available |
Scenario 3: You Quit and Choose COBRA Continuation
James has a standard HRA with $5,000 remaining. His employer offers COBRA continuation for HRA benefits. James chooses to continue his HRA for 12 months at a cost of $400 per month (the full premium plus the 2% administrative fee). Over the year, he uses $3,000 of his original balance plus pays $4,800 in COBRA premiums ($400 Ă— 12 months). When COBRA ends, his remaining HRA balance ($2,000) is forfeited.
| Action | Consequence |
|---|---|
| Continue HRA through COBRA | Keep benefits for up to 18 months but pay full premium |
| Don’t elect COBRA continuation | Lose HRA access immediately after leaving |
| Use remaining balance during COBRA period | Get reimbursed; unused amounts still forfeit when COBRA ends |
Steps You Must Take Before You Quit
Gather all your medical receipts and invoices from the current year that you haven’t submitted yet. Check prescription bottles, dental statements, vision exam invoices, and any other healthcare paperwork. You have a limited time window—sometimes just a few weeks—to submit these after leaving, so act quickly.
Submit all claims immediately to your HR department or the HRA administrator. Include receipts, invoices, and proof of the medical service. Don’t wait to see if you get another job; submit these claims while your employment is still active or immediately after you leave. Each day of delay increases the risk that your claim gets rejected.
Request your HRA balance statement from your employer before you leave. Ask HR for a written summary of your remaining balance, any pending claims, and the exact date your coverage ends. This protects you if there’s a dispute about forfeiture later.
Review your plan document to understand forfeiture rules, COBRA options, and continuation coverage. Your employer is required to give you this document if you ask for it. The plan document is the legal rulebook for your HRA, and it tells you exactly what happens when you leave.
Check if your employer offers run-out period where you can still submit claims for a set number of days after employment ends. Some employers allow 30, 60, or 90 days to file claims. This is rare but worth asking about if you have pending medical expenses.
The COBRA Option: Keep Coverage, Pay the Price
COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal law that lets you keep your employer’s health benefits after you leave, but only if your employer has 20 or more employees. COBRA applies to some HRA plans, though not all. Your employer must give you a COBRA notification letter within 14 days of your termination or resignation.
When you elect COBRA for your HRA, you keep the same coverage as active employees, but you pay 100% of the premium plus a 2% administrative fee. This is expensive—the average cost is $400 to $600 per month for an individual. You can continue for up to 18 months if you quit voluntarily or 29 months if you’re fired or laid off for reasons other than serious misconduct.
COBRA has strict rules. You must elect it within 60 days of losing coverage, or you lose the option forever. You have to make monthly payments on time; if you miss a payment, your coverage ends immediately with no grace period. If you fail to pay within 30 days of the due date, you’re terminated from COBRA and can’t get back in.
During the COBRA period, you continue using your HRA the same way you did as an employee. The employer continues to fund or access the HRA balance during the COBRA period in some plans, but in others, COBRA simply lets you keep paying for the same coverage you had. After 18 months, COBRA ends, and you’re back where you started—without coverage unless you find an alternative.
What Happens to Your HRA Money: The Forfeiture Rules
Use-it-or-lose-it rule: Most HRA plans follow the use-it-or-lose-it rule, meaning any money you don’t spend in the current plan year gets forfeited. When you quit, any remaining balance is typically forfeited to your employer at that moment. This is why submitting all your claims before you leave is critical.
Carryover exception: A small percentage of employers allow employees to carry over up to $500 (or a different amount set by the employer) into the next year. This carryover balance sometimes transfers with you if you quit, but this is extremely rare. Check your plan document to see if your employer allows carryover.
Rollover to HSA: Some employers allow employees to roll unused HRA balances into a Health Savings Account if they switch to a high-deductible health plan. However, the new employer must offer this option, and not all employers do. This rollover option is not automatic—you have to request it and get approval from both your old and new employer.
Defends against HIPAA: The Health Insurance Portability and Accountability Act (HIPAA) requires that health plans continue to cover you for certain qualifying life events, but HIPAA doesn’t require employers to keep your HRA money intact after you leave. The rules for HRA forfeiture fall outside of HIPAA protection, which means your employer can enforce forfeiture even though it seems unfair.
Special Situations: Retirement, Disability, and Death
If you reach your company’s retirement age and have a Retiree HRA, you may be eligible to keep accessing those funds into retirement. A Retiree HRA is specifically designed to reimburse medical expenses for retirees and is often used to cover Medicare premiums and out-of-pocket costs. The rules for Retiree HRAs are completely different from regular HRAs, and they don’t forfeit when you leave active employment.
If you leave due to disability, some employers offer extended HRA benefits as part of their disability insurance plan. You should contact your employer’s benefits department to ask whether disability triggers special HRA rules. Federal law doesn’t require this, but some employers include it in their benefits package as a form of employee protection.
If an employee dies while still employed, the beneficiary typically cannot access the HRA funds. HRAs are not inheritable, and the deceased employee’s remaining balance is forfeited to the employer. Some employers offer a death benefit or life insurance payout, but the HRA itself doesn’t transfer to family members.
Tax Implications: What You Need to Know
HRA reimbursements are not taxable income to you when the funds pay for qualified medical expenses. This is one of the biggest advantages of HRAs—the money comes to you tax-free as long as you use it correctly. However, if you try to use HRA money for non-qualified expenses, the reimbursement counts as taxable income, and you owe regular income tax plus a 20% penalty.
When you leave your job, no taxes are triggered by the forfeiture of your unused HRA balance. You don’t owe income tax on money you didn’t receive, even though losing the balance feels unfair. The forfeiture is a business transaction between you and your employer, not a taxable event.
If your employer makes a final contribution to your HRA after you leave (to cover a COBRA premium, for example), that contribution remains tax-free as long as it’s used for qualified medical expenses. However, if you receive a cash payout of your HRA balance instead of continuing coverage, that cash payout is taxable income. Most employers don’t allow cash payouts, so this situation is rare.
Mistakes to Avoid That Cost You Money
Mistake 1: Waiting to submit claims until after you quit. Many employers set deadlines for claim submission that fall before or immediately after your last day. If you miss the deadline, your claims get rejected even for services you received as an employee. Submit all claims at least one week before your intended departure date.
Mistake 2: Not understanding your specific plan’s forfeiture rules. Every employer’s HRA plan is different. Some let you carry over funds; others don’t. Some offer COBRA; others don’t. If you assume your HRA works like someone else’s HRA, you’ll be surprised and disappointed. Read your plan document or ask HR to explain your specific rules in writing.
Mistake 3: Using your HRA for non-qualified expenses right before you quit. If you try to use your HRA balance for something that’s not a qualified medical expense (like vitamins, cosmetic procedures, or gym memberships), your employer may deny the claim. Even worse, some employers flag these attempts and investigate them. Stick to truly qualified medical expenses.
Mistake 4: Forgetting to claim ongoing medical expenses. If you take regular medications or have ongoing treatments like physical therapy, get all remaining doses or sessions completed before you quit. Once you leave, you can’t submit new claims for these recurring expenses unless you have COBRA continuation.
Mistake 5: Ignoring the COBRA election deadline. You must elect COBRA within 60 days of losing coverage, or you lose the right to it forever. Mark this deadline on your calendar and submit your COBRA election before the deadline passes. Missing this deadline can’t be fixed, and there’s no exceptions process.
Do’s and Don’ts for HRA Management When You’re Leaving
| Do’s | Why It Matters |
|---|---|
| Review your plan document before quitting | Know your specific forfeiture rules and options |
| Submit all receipts at least one week early | Ensure your claims get processed before coverage ends |
| Keep copies of all submitted claims | Prove you filed claims on time if disputes arise |
| Ask HR for a final balance statement | Confirm the exact amount forfeited |
| Elect COBRA immediately if you want it | Missing the deadline means losing coverage options |
| Don’ts | Why It Matters |
|---|---|
| Don’t assume your HRA works like a friend’s HRA | Rules vary by employer and plan type |
| Don’t wait until after you quit to gather receipts | Many claims get denied for late filing |
| Don’t spend your HRA on non-qualified expenses | Risk denial of the claim and IRS penalties |
| Don’t ignore the COBRA notification letter | You have only 60 days to make the election |
| Don’t leave money on the table without investigating rollover options | Some employers allow carryover or HSA rollover |
Pros and Cons of HRAs for Departing Employees
| Pros | Cons |
|---|---|
| Tax-free reimbursements for qualified expenses | Lose unused balance when you leave in most cases |
| Employer-funded means no payroll deductions | Rules vary by employer, creating confusion |
| Can elect COBRA to continue coverage | COBRA is expensive and lasts only 18 months |
| Some employers allow HSA rollover | Rollover options are rare and require both employers’ cooperation |
| Immediate reimbursement in most cases | Coverage ends immediately in most situations |
Specific State Variations and Additional Protections
Federal law controls most HRA rules, but a few states have added their own requirements. California requires employers to clearly disclose HRA forfeiture policies in writing before employees start work. If an employer fails to disclose the forfeiture policy, California courts have sometimes required employers to pay out forfeited balances, though this is not guaranteed.
New York has passed regulations requiring employers to offer cafeteria plans that include HRA options for employees. The state also requires clear disclosure of all plan terms, but New York does not prevent forfeiture of HRA balances when an employee leaves.
Massachusetts requires employers to continue health insurance coverage for terminated employees under certain circumstances, but this rule applies to group health insurance, not specifically to HRAs. HRAs are still subject to forfeiture under Massachusetts law.
Most other states follow federal ERISA rules without additional protections. If you live in a state not mentioned here, check your state’s labor department website to see if special HRA rules apply. Some states are moving toward stricter forfeiture rules, so state law may be changing in your area.
What HR Must Tell You Before You Leave
Your employer is required by federal law to provide certain disclosures about your HRA when you leave. These include a Summary of Benefits and Coverage (SBC) that explains what’s covered under your plan, what your coverage costs, and what happens if you quit. Your employer must give you this document before your coverage ends.
Your employer must also provide a COBRA election notice within 14 days of your termination or resignation (or within 14 days of when you lose coverage). This notice explains your COBRA rights, the cost of COBRA coverage, and the deadline to make your election. Don’t ignore this notice—it contains critical information about your options.
You have the right to request a copy of your complete plan document from your employer. This document contains the legal terms of your HRA, including forfeiture rules, covered expenses, and continuation options. Your employer must provide this within 30 days of your request. The plan document is your ultimate authority on what happens to your HRA when you leave.
When You Leave and Your Family Is Still Covered
If your family was covered under your HRA as dependents, they also lose coverage when you leave unless COBRA continuation is elected. Spouses can elect COBRA continuation independently and can maintain coverage separately from your election. Each family member has the right to elect or decline COBRA, and their elections don’t have to match yours.
Children can elect COBRA until age 26 (the same age limit as regular health plans). If you have a special needs child, check whether your HRA or COBRA plan includes a special needs trust option. Some plans allow these trusts to continue paying for a disabled child’s medical expenses even after the main coverage ends.
If your spouse qualifies for Medicare or another employer’s plan, they may lose COBRA eligibility immediately if they enroll in that other coverage. HIPAA rules protect spouses from losing coverage due to certain qualifying events, but changing employers typically requires immediate disenrollment from COBRA.
Comparing HRAs to Other Health Account Types
HRA vs. HSA (Health Savings Account): HSAs are individually owned accounts that you keep even after you leave your job. HRAs belong to your employer and are forfeited when you leave. HSAs have no annual spending requirement (no use-it-or-lose-it rule), but HRAs typically do. HSAs require enrollment in a high-deductible health plan, but HRAs don’t have this restriction.
HRA vs. FSA (Flexible Spending Account): FSAs are also employer-owned and forfeit when you leave, just like HRAs. FSAs have strict use-it-or-lose-it rules with up to $3,200 in carryover allowed per year. HRAs have more flexible carryover rules and sometimes allow rollover to HSAs. Both accounts offer tax-free reimbursement for qualified expenses.
HRA vs. Traditional Health Insurance: Traditional health insurance continues after you leave if you elect COBRA or find new coverage. HRAs don’t exist independently—they’re part of an employer’s health insurance offering. You can’t keep your HRA after you leave unless your employer offers COBRA specifically for the HRA, which is rare. Traditional health insurance is about coverage; HRAs are about reimbursement.
Your Rights as a Former Employee
You have the right to receive a written summary of your final HRA balance before or shortly after your employment ends. This summary should show how much you had, how much you spent, how much was forfeited, and the date your coverage ended. If your employer refuses to provide this information, you can file a complaint with the Department of Labor.
You have the right to appeal a denied claim before your coverage ends. If your employer denies a medical expense claim, request the specific reason for the denial in writing. You can then either provide additional documentation or request an appeal to an independent reviewer. This appeal right continues for a limited time after you leave.
You have the right to request plan documents and explanations from your employer or the plan administrator. If your employer won’t explain how your HRA forfeiture works, you can request the plan document directly. If the plan is unclear, you can file a complaint with the Employee Benefits Security Administration (EBSA).
Common Questions and Answers
Can I take my HRA to my new job? No. HRAs don’t transfer between employers. However, your new employer might offer their own HRA, and you should ask about it during your hiring process.
Do I get back the HRA money my employer contributed? No. The money belongs to your employer. Any unused balance is forfeited unless your plan allows carryover or HSA rollover, which is rare.
What if I quit and then get hired back by the same company? No. Starting again is treated as a new employee. You don’t get access to your old HRA balance, and you start fresh with whatever HRA the company offers new hires.
Can I submit claims after I quit? It depends. Most plans allow a run-out period of 30 to 90 days for claims incurred before you quit. Claims for services after your departure date are typically denied.
Is my HRA forfeiture taxable to me? No. Forfeiture is not a taxable event. You don’t owe income tax on money you never received. The forfeiture stays as a business loss for your employer.
Can I negotiate keeping my HRA balance when I quit? Probably not. HRA forfeiture rules are part of your plan document and apply equally to all employees. Individual negotiations are rare and usually not permitted.
What happens if my employer goes out of business? You lose your HRA. When a company closes, employees’ HRA balances are typically forfeited because the plan terminates. COBRA continuation may apply if the company has 20 or more employees, but this is complicated.
Can I use my HRA for my family’s medical expenses? Yes. HRAs cover qualified medical expenses for you, your spouse, and your dependents. The IRS defines dependent broadly, including adult children age 26 and under and some other relatives.
Does my new employer have to recognize my HRA from my old job? No. New employers are not required to honor or continue another employer’s HRA. Your new employer’s HRA (if they offer one) is a completely separate plan.
What’s the difference between forfeiture and rollover? Forfeiture means the money stays with your employer. Rollover means the money transfers to an HSA or another account. Rollover is optional and rare; most employers use forfeiture.
Can I file a lawsuit if my HRA is forfeited? Rarely. ERISA allows employers to enforce forfeiture rules stated in the plan document. You’d need to show the forfeiture violated federal law or your state’s specific protections.
Do I still pay payroll taxes on my HRA balance when I quit? No. HRA contributions and balances are not subject to payroll taxes. They’re also not subject to Social Security or Medicare taxes.
What if I’m eligible for unemployment benefits after I quit? They’re separate. Your HRA forfeiture doesn’t affect your unemployment benefits eligibility. However, the loss of health insurance may affect your ability to pay for medical care while unemployed.
Can my employer take back money I already spent from my HRA? No. Once you’ve been reimbursed by your HRA for a qualified expense, that money is yours. Your employer cannot demand repayment of reimbursements already received.
Related reading
- Can You Have an HRA and HSA? (w/Examples) + FAQs
- Do HRAs Rollover? (w/Examples) + FAQs
- Should I Choose an HRA or HSA? (w/Examples) + FAQs
- Do HSA Funds Expire? (w/Examples) + FAQs
- Does HSA Roll Over to New Employer? (w/Examples) + FAQs
- Does HSA Roll Over if You Quit? (w/Examples) + FAQs
- Does HealthEquity HSA Roll Over? (w/Examples) + FAQs