Health Reimbursement Arrangement or Account (HRA)

It has been much to long since my last post. My life has been pretty hectic lately. This is a post that I have wanted to put up for some time.

The last few months I have been doing some work with a company who among other things works with Fortune 500 companies and their retirees. One thing that many of these companies do is provide funds for those retirees to help them pay for their Medicare Supplement plans and other medical expenses through a Health Reimbursement Arrangement (HRA). This begs the question: what is a HRA?

A HRA (Health Reimbursement Arrangement also sometimes called a Health Reimbursement Account) is a tax qualified, employer established benefit plan that can be used as part of a company’s total health benefit package. This can be for current and former employees (typically retirees in my experience) alike.

The employer has a great deal of flexibility in plan design and offering various combinations of benefits. The employee/retiree does not have to be covered by any other health care plan to participate. (Although the employer can structure it to require certain types of benefits in order to qualify)

According to IRS Publication 969:

A health reimbursement arrangement (HRA) must be funded solely by an employer. The contribution cannot be paid through a voluntary salary reduction agreement on the part of an employee. Employees (or retirees) are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period. An HRA may be offered with other health plans, including FSA’s.

  • Unlike HSAs or Archer MSAs which must be reported on Form 1040 or Form 1040NR, there are no reporting requirements for HRAs on your income tax form.

What are some of the benefits of an HRA?

  • Contributions made by the employer can be excluded from gross income.
  • Reimbursements may be tax free if you pay qualified medical expenses.

Generally, qualified medical expenses are those that are eligible for the medical & dental expense deduction on Form 1040 Schedule A. They also include health insurance premiums, long term care coverage and amounts not covered under another health plan.

  • Any unused amounts in the HRA can be carried forward for reimbursements in later years.
  • CAUTION: You cannot claim a reimbursement from an HRA and deduct those same expenses on Schedule A.

 Contribution Limits:

There is no limit on the amount of money the employer can contribute to the accounts. Additionally, the maximum reimbursement amount credited under the HRA in the future may be increased or decreased by amounts not previously used.

Balances remaining in the HRA at the end of the year can generally be carried over to the next year. The employer is not permitted to refund any part of the balance to you. These amounts can never be used for anything but reimbursements for qualified medical expenses.

Distributions from an HRA:

Generally, distributions from an HRA must be paid to reimburse you for qualified medical expenses. The date the expense was incurred must be on or after the date of enrollment into the HRA. Plans can be structured in such a way as to be paid to a designated beneficiary. Some of those individuals include:

Current and former employees, spouses (including surviving spouses), dependents of those employees among others.

In order for a HRA to maintain tax-qualified status, employers must comply with certain requirements that apply to certain accident and health plans.  (See Publication 15-B)

 

 

 

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About Brad Merrill

Brad W. Merrill is the Principal at Brad W. Merrill Accounting and Tax Services. He specializes in Sales & Use taxes and accounting for small businesses. He has a B.S. in Accounting from the David Eccles School of Business at the University of Utah.
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4 Responses to Health Reimbursement Arrangement or Account (HRA)

  1. Sheya says:

    Great post, I learned a big difference between HRA and HSA, for instance, is that HRA funds are in addition to your salary while HSA comes in part from your salary. So these are a bit different.

  2. Ethan Markis says:

    Aw, this was a really nice post. In thought I wish to put in writing like this additionally ? taking time and precise effort to make an excellent article? but what can I say? I procrastinate alot and on no account seem to get something done.

  3. Excellently written article, if perhaps all bloggers offered exactly the same level of content as you, the internet would be a much better place. Please continue the good work!

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