Health Reimbursement Arrangement – HRA

The HRA (Health Reimbursement Arrangement) is often confused with the very popular HSA's (Health Savings Account). While the two are similar, they are also different in many ways.

To avoid confusion, we will only review the HRA on this page. There is plenty of information on HSA's on other pages on this site.

The HRA is a modernized version of the MERP (Medical Expense Reimbursement Plan). According to IRS Publication 69

You may enjoy several benefits from having an HRA.

  • Contributions made by your employer can be excluded from your gross income.
  • Reimbursements may be tax free if you pay qualified medical expenses. See Qualified medical expenses, later.
  • Any unused amounts in the HRA can be carried forward for reimbursements in later years.

The ability to carry over unused funds from one year to the next makes this more like an HSA and different from the "use it or lose it" requirement of the FSA (Flex Spending Account).

Qualified medical expenses from your HRA include the following. 

 

  • Amounts paid for health insurance premiums.
  • Amounts paid for long-term care coverage.
  • Amounts that are not covered under another health plan.

Again, another difference in the HRA vs. the HSA whereby funds from the HRA can be used to pay health insurance premiums which is disallowed under the HSA.

HRA funds are employer contributions only. Employee money is not allowed under an HRA.

Contact us for more information on how your company and employees can benefit from an HRA.

Always consult a tax advisor before implementing such plans.