HRAs

Health reimbursement arrangements (HRAs) are a form of a medical reimbursement plan and a self-insured health plan.  The IRS has issued guidance defining HRAs and the proper operation of such plans in Notice 2002-45, Revenue Ruling 2002-41, Revenue Ruling 2005-24, and Revenue Ruling 2006-36.

Many HRA programs are frequently referred to as “VEBAs”.  This is not exactly an accurate label because a VEBA is simply a type of trust that can offer an HRA, but it is a common occurrence nonetheless. 

HRAs are defined with four general characteristics:

1. Funded solely by the employer;
   
   
2. Reimburses employee and their spouse and tax-qualified dependents for medical expenses as defined in IRC Section 213(d);
   
   
3. Provides reimbursement up to a maximum dollar amount for a particular coverage period (in many cases the maximum reimbursement amount is equal to an account balance); and
   
   
4. Unused reimbursement amounts are carried forward for use in subsequent years.

HRAs come in two basic flavors – funded and unfunded.  Funded HRAs generally hold assets in a Section 501(c)(9) VEBA or governmental Section 115 integral part trust vehicle and are used primarily by governmental employers.

Unfunded HRAs hold the plan assets in the general account of the employer and are used most commonly in the private sector.

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