Employer Reimbursement and Spending Accounts

Health Reimbursement Arrangements (HRAs)

A Health Reimbursement Arrangement is an employer-funded plan that reimburses employees for qualified medical expenses. Health Reimbursement Arrangements are funded solely by employer contributions. Employees are not permitted to contribute to a Health Reimbursement Arrangement through salary reductions. While FSAs rely heavily on employee salary deductions, HRAs strictly prohibit employee contributions.

The employer sets the annual HRA allowance, subject to any federal limit that applies to the type of HRA. Employer contributions to a Health Reimbursement Arrangement are generally excludable from an employee's gross income, and reimbursements received by an employee for qualified medical expenses are tax-free. Employers generally deduct HRA reimbursements as business expenses; they do not deduct the same amount twice as both a contribution and a reimbursement.

An HRA can reimburse medical care expenses defined under Internal Revenue Code Section 213(d). Depending on plan design, an HRA may be permitted to reimburse individual health insurance premiums. Some HRAs can be paired with a high-deductible health plan or other employer group health coverage; if you want to contribute to an HSA, the HRA must also meet HSA eligibility rules.

An HRA is an employer-sponsored reimbursement arrangement, not an employee-owned savings account. Because an HRA is owned by the employer, account balances are not automatically portable when an employee leaves the company. Employers may choose whether unused HRA funds roll over to the following plan year. An employer may design an HRA so unused balances are forfeited when employment ends, subject to applicable continuation coverage requirements. Unlike an FSA, an HRA does not require the uniform coverage rule unless the employer voluntarily adopts that provision in the plan document.