How do health reimbursement accounts (HRAs) work?
HRAs are employer-sponsored accounts, funded solely by employers, used to reimburse employees for qualified medical expenses.
HRAs are established by the employer, and only the employer can contribute to the account. Although they have no contribution amount limit, the employer does set a self-designated annual contribution amount. Employers can also restrict the types of medical services that are eligible for reimbursement from the list of qualified services defined by the Internal Revenue Service.
Reimbursements for qualified medical expenses are exempt from federal income and payroll taxes. Any unused funds can carry over indefinitely, although employers may limit the aggregate carryover amount.
Employers need not fund HRAs until employees draw on the funds and, unlike flexible spending accounts, the entirety of the funds do not need to be available from the beginning of the period. HRAs are usually offered in conjunction with a high-deductible health plan, although employers can “integrate” them with other types of qualified group health plans. With the implementation of the Affordable Care Act in 2010, specifically the addition of Section 2711 of the Public Health Service Act, which prohibits group health insurance plans from limiting the dollar value of lifetime and annual “essential health benefits,” most HRAs are no longer available as stand-alone accounts, although there are a few exceptions. HRAs, by definition, impose an annual benefit limit as the employer contributes a preset amount every year.
 Retiree HRAs and one-person stand-alone HRAs are still compliant with the new ACA ruling.
Joint Committee on Taxation. 2008. Tax Expenditures for Health Care. JCX-66-08. Washington, DC: Joint Committee on Taxation.
Rapaport, Carol. 2013. Tax-Advantaged Accounts for Health Care Expenses: Side by Side Comparison. RS21573. Washington, DC: Congressional Research Service.
United States Department of Labor,“FAQs about Affordable Care Act Implementation (Part XI),” accessed February 6, 2017, https://www.dol.gov/ebsa/faqs/faq-aca11.html.