Health Reimbursement Account
Health Reimbursement Account is a notional derivative of a Health Reimbursement Arrangement (HRA), a type of US employer-funded health benefit plan that reimburses employees for out-of-pocket medical expenses. Following implementation of the Affordable Care Act, the health plans must be integrated with a qualified employer-sponsored group health insurance plan to avoid excise tax penalties. Using a Health Reimbursement Arrangement yields "tax advantages to offset health care costs" for both employees and employers.
Health Reimbursement Accounts are funded solely by the employer; they cannot be funded through employee salary deductions. The employer sets the parameters for the Health Reimbursement Accounts, and unused dollars remain with the employer: they do not follow the employee to new employment.
Health Reimbursement Accounts are notional accounts; no funds are expensed until reimbursements are paid. By health reimbursement arrangements, employers reimburse employees directly only after the employees incur approved medical expenses. According to the IRS, an HRA "must be funded solely by an employer. Contributions cannot be paid through a salary reduction agreement (such as a cafeteria plan). There is no minimum or maximum contribution limit on the employer's contributions to an HRA.
According to the IRS, employees are reimbursed tax-free for qualified medical expenses up to a maximum amount for a coverage period. HRAs reimburse only items (co-pays, coinsurance, deductibles, and services) agreed to by the employer that are not covered by the employer's selected standard insurance plan (any health insurance plan, not only a High Deductible Health Plan). The arrangements are described in IRC Section 105.
With an HRA, employers fund individual reimbursement accounts for their employees and define what those funds can be used for, specified out-of-pocket expenses such as deductibles and co-pays.
Qualified claims must be described in the HRA plan document at inception: before reimbursing employees for the medical expenses. Arrangements (medical services, dental services, co-pays, coinsurance, deductibles, participation) may vary from plan to plan, and an employer may have multiple plans in place, allowing much flexibility. The kinds of expenses that can be paid under an HRA are generally the same as the expenses that can be paid through a Flexible Spending Account (FSA).
The employer is not required to prepay into a fund for reimbursements. Instead, the employer reimburses employee claims as they occur.
Reimbursements under an HRA can be made to the following persons:
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