What is a Health Reimbursement Arrangement?
A Health Reimbursement Arrangement (“HRA”) is an employer owned and funded plan that reimburses employees for qualified medical expenses. Any reimbursements made by an HRA are generally tax-free for the employee and tax deductible for the employer. Unused HRA funds can either roll over for use in the next year, or the employer can impose a “use it or lose it rule. A “use it or lose it rules” means that any money left in the plan either after the end of the year or when the employment relationship ends reverts back to the employer. However, employers may allow former employees to have access to their HRAs. HRAs are funded through employer contributions and employees cannot contribute additional monies to their account.
What Expense are Eligible for Reimbursement?
As indicated above, HRAs can be used to reimburse qualified medical expenses. Qualified medical expenses are any “costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.” These reimbursable expenses include, but are not limited to, expenses for check-ups, doctor’s visits, mental health appointment, prescriptions, screenings, testing, wheelchairs, glucose monitors, crutches, etc. Because an HRA is owned by your employer, your employer controls which expenses are covered by the plan.
In addition to traditional medical and surgical expenses, HRAs may be used to reimburse expenses for dental exams, eye exams, alcohol and drug-related substance use disorder treatment programs, smoking-cessation programs. In some instances, depending on how the employer has the plan set up, an HRA can be used to pay health insurance premiums.
Generally, expenses incurred by you, your spouse, and your dependents are eligible for reimbursement, as long as you actually pay for the expenses. An HRA can be used to reimburse qualified medical expenses you paid this year; medical expenses that you will receive in a future are not, generally, eligible for reimbursement.
Takeaways:
Health Reimbursement Arrangements are owned and funded by the employer. An HRA can be used to reimburse a wide variety of medical expenses for you, your spouse, and your dependents. While it is not an exhaustive list, the Internal Revenue Service Publication 502 provides guidance as to what medical expenses may qualify for reimbursement. However, because your employer can decide which medical expenses are eligible for reimbursement under the HRA, it is important that you confirm whether an expense will be reimbursed by your employer before the expense is incurred.