Benefits Solutions

Health Reimbursement Arrangements

Health Reimbursement Arrangements (HRAs) were created by an administrative ruling issued by the IRS in June 2002. This ruling reinterpreted existing regulations relating to Flexible Spending Accounts, and created accounts in which accumulated funds could roll over from one year to the next for the first time.

HRAs consist of employer contributions to notional accounts kept on behalf of enrolled employees. Similar to Flexible Spending Accounts, employees can use HRA funds for reimbursement for eligible medical expenses. Unused funds can be rolled over from year to year, subject to limits established by the employer. The funds are owned by the employer and may be forfeited should the employee terminate or dis-enroll. The account can never be cashed out and taken as compensation by the employee. If the employer permits withdrawals for non-medical expenses, the HRA will be disqualified for all employees, who will owe taxes on all amounts paid out of the HRA, including all prior medical reimbursements.