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What to know about medical reimbursement plans

April 30, 2020
HRA, Medical Reimbursement

What are Medical Reimbursement Plans?

Medical reimbursement plans are IRS-approved health plans that allow for tax-free reimbursement for medical expenses.

There are a few different types of medical reimbursement plans including: Health Reimbursement Arrangements (HRAs), Healthcare Reimbursement Plans (HRPs), Health Savings Accounts (HSAs), and Health Flexible Spending Accounts (FSAs).

Medical reimbursement plans can be used alongside a group health insurance plan. Or, the medical reimbursement plan can be offered as the main health benefit plan, usually instead of a group health insurance plan. Because the reimbursements occur pre-tax, employees and employers often save up to 50% in combined taxes on the cost of medical expenses.

The sections outlined on our navigation bar provide more information about the types of medical reimbursement plans available, and how they are used.

Different Approaches to Medical Reimbursement Plans

In this section, we’ve outlined four different approaches with medical reimbursement plans, and how they compare to each other.

Three Main Types of Medical Reimbursement Plans

There are three main types of Medical Reimbursement Plans:

Health Savings Accounts (HSAs)

HSAs are individual bank accounts owned by employees that allow for tax-free payment or reimbursement of eligible medical expenses. An employer usually offers an HSA-qualified high-deductible health plan and an HSA.

Health Reimbursement Arrangements (HRAs)

HRAs are employer-funded, tax advantaged employer health benefit plans used to reimburse employees for eligible medical expenses.

  • With a group coverage HRA, the HRA is paired with a high-deductible health insurance plan to reimburse employees for their deductible expenses.
  • With a qualified small employer HRA (QSEHRA), the HRA is offered on a stand-alone basis by businesses with fewer than 50 full-time employees. Employees with a QSEHRA can be reimbursed tax-free for a wide variety of health care products and services, including individual health insurance premiums.

Flexible Spending Accounts (FSAs)

Health FSAs are employer-established benefit plans that allow for tax-free reimbursement of qualified medical expenses.

Download the HRA vs. HSA vs. FSA comparison chart

Medical Reimbursement Plans Comparison Chart

The chart below summarizes and compares the four main types of medical reimbursement accounts.

  Health Savings Account (HSA) Health Reimbursement Arrangement (HRA) Health Flexible Spending Account (FSA)
Who May Contribute Employer, employee, or third party. Employer only. Employee and employer.
Cost of Employer Contributions 100% paid regardless of utilization. Only pay for employee utilization (typically 25-50%). 100% paid regardless of utilization.
Tax Treatment Tax-free. Tax-free. Tax-free.
Eligibility Requirements Must have HSA-qualified high-deductible health plan ($1,300+ single / $2,600+ family deductible in 2015). All employees and former employees as determined by employer, not self-employed. All employees, not self-employed.
Purchase of Health Insurance Plan Required? Yes.Purchase of HSA-qualified high deductible health plan required. No.Employer can require participation in company group health insurance plan to be eligible for the HRA. No.
Medical Expenses Allowed Unreimbursed medical care expenses as defined by IRC 213(d), and insurance premiums for unemployed individuals.No employer limitations. Unreimbursed medical care expenses as defined by IRC 213(d) or IRS Publication 502; including health insurance premiums.Employer can limit categories of IRS-approved expenses.Eligible expenses outlined in plan documents. Unreimbursed medical care expenses as defined by IRC 213(d); no health insurance premiums.
Funds Carried Over to Next Year? Yes. Determined by the employer. Determined by the employer; $500 maximum.
Administrator Employee. Employer or third party administrator (TPA). Employer or third party administrator (TPA).
Portable After Termination? Yes.Continued access to unused account balance if employee is no longer working for the employer.Withdrawals for non-medical purposes are subject to income tax and a 20% penalty tax.Once account holder reaches age 65 (Medicare eligibility age), becomes disabled, or dies, withdrawals for non-medical purposes are subject to income tax only, with no penalty. Determined by the employer. No.Account cannot be maintained if the employee is no longer working for the employer.

Note: Tax benefits may be limited for some business owners.

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