Health Reimbursement Account - Distributions

Distributions

According to the IRS, "employees are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period HRAs reimburse only those items (copays, coinsurance, deductibles and services) agreed to by the employer which are not covered by the company's selected standard insurance plan (any health insurance plan, not only high-deductible plans). These arrangements are described in IRC Section 105.

With an HRA, employers fund individual reimbursement accounts for their employees and define what those funds can be used for – i.e., specified out-of-pocket expenses such as deductibles and co-pays.

Qualified claims must be described in the HRA plan document at inception, i.e., before reimbursing employees for those medical expenses. Arrangements (medical services, dental services, co-pays, coinsurance, deductibles, participation) may vary from plan to plan, and an employer may have multiple plans in place, allowing much flexibility. The kinds of expenses that can be paid under a HRA plan are generally the same as the expenses that can be paid through a Flexible Spending Account (FSA).

The employer is not required to prepay into a fund for reimbursements. Instead the employer reimburses employee claims as they occur.

Reimbursements under an HRA can be made to the following persons:

1. Current and former employees.
2. Spouses and dependents of those employees.
3. Any person the employee could have claimed as a dependent on the employee's return except that:
   1. The person filed a joint return,
   2. The person had gross income of $3,400 or more, or
   3. The employee, or his/her spouse if filing jointly, could be claimed as a dependent on someone else's tax return.
4. Spouses and dependents of deceased employees.