Health Reimbursement Accounts (HRA)

Health reimbursement accounts consist of funds set aside by employers to reimburse employees for qualified medical expenses, just as an insurance plan will reimburse covered individuals for the cost of services incurred. The guidance provided by the Department of the Treasury makes it clear that health reimbursement accounts are not a new type of account designated within the Internal Revenue Code. Rather, employers qualify for preferential tax treatment of funds placed in a health reimbursement account in the same way that they qualify for tax advantages by funding an insurance plan. Employers may deduct the cost of an insurance plan — and now a health reimbursement account — as a business expense.

Health reimbursement arrangements are open to employees of companies of all sizes. A health reimbursement account is flexible to the employer and may provide first-dollar medical coverage until funds are exhausted. For example, if an employee has a $500 qualifying medical expense, then the full amount may be covered by the health reimbursement arrangement if the funds are available in the account. Under a health reimbursement account, the employer provides the funds, not the employee. Contributions made by the employer may be excluded from the employee’s gross income.

All unused employer cpmtributions are rolled over at the end of the year. Former employees, including retirees, can have continued access to unused reimbursement amounts. Health reimbursement accounts are retained by the employer and do not follow an employee to new employment.

Click here for more information on Health Reimbursement Accounts.