HealthCare Reimbursement Accounts (HRA)

The IRS (Notice 2002-45) authorizes the use of Health Care Reimbursement Arrangements (HRA) as an employer funded cost containment vehicle for employee benefits. It is designed to avoid most of the complicated rules that currently apply to medical reimbursement accounts in an FSA.

A HRA is funded 100% by the employer and cannot include any employee pre-tax deferrals. Reimbursement from a HRA is made only when an employee has a qualifying expense. Unlike FSAs, HRAs do not have a “use it or lose it” rule.

HRAs are not subject to section 125 cafeteria plan rules which require that the full amount be set aside under the health care FSA must be available from day one of the plan year for reimbursement. HRAs do not require a 12-month period of coverage. HRAs may be offered for any period of time and do not necessarily have to be offered for a full year.

An employer can offer a HRA along side an FSA. The HRA can be set up that either the HRA or FSA must be depleted before the other is used

HRAs are an attractive adjunct for an employer to move to a high deductible medical plan, using some of the premium savings to fund the HRA accounts while maintaining control of the timing of the contributions and the disposition of undistributed funds.

Qualifying for a HRA

Contributions to a HRA

Distributions From a HRA

Balance in a HRA

Employer Participation