HEALTH REIMBURSEMENT ACCOUNT

What is a Health Reimbursement Account?

Healthcare costs can account for a significant portion of employees’ expenses. A health reimbursement account provides a way for a business to help its employees with their healthcare costs.

A health reimbursement account (HRA) is an employer-funded account that reimburses employees for covered out-of-pocket medical expenses. Employees typically must pay for their medical expenses themselves and then submit claims to receive a reimbursement. These accounts usually can’t be used to pay for medical expenses directly.

Unlike most flexible spending accounts (FSA) and health savings accounts (HSA), most HRAs are exclusively funded by employers. Employees usually don’t make any contributions to these accounts.

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What is the Maximum Contribution Employers Can Make to HRAs?

There is no legally mandated maximum contribution limit for HRAs. In most cases, employers are free to put as much as they like into these accounts. This is another way in which HRAs differ from HSAs and FSAs, which both have maximum contribution limits.

What Medical Expenses Qualify for Reimbursement?

In order to qualify for reimbursement from an HRA, a medical expense must meet all requirements of Section 213 of the Internal Revenue Code. The IRS often lets businesses further restrict what their plan considers a qualified medical expense if businesses want to.

While businesses frequently can limit qualified expenses as they wish, most plans cover a broad array of medical expenses. Some commonly covered costs include:

• Prescription drugs
• Co-payments and coinsurance
• Contraception
• Certain medical supplies
• Premiums for individual health insurance policies

Do HRAs Cover Qualified Medical Expenses for Family Members?

Qualified medical expenses for family members are typically eligible for reimbursement from an HRA. In general, any family member that an employee claims as a dependent is covered by the employee’s HRA. This may include spouses, children and, in a few cases, other family members.