Another type of savings account—a Health Reimbursement Arrangement (HRA)—gives employers flexibility to offer various combinations of benefits in designing their plan. While an HRA may be offered with other employer-provided health plans, employees need not be covered under any other healthcare plan to participate. Under HRAs, employees are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period. (Certain limitations may apply to highly compensated participants.)
An HRA must be funded solely by an employer. There is no limit on the amount of money an employer can contribute to employee accounts, however, the accounts may not be funded through employee salary deferrals under a cafeteria plan. Additionally, employers are not permitted to refund any part of the balance to employees. These amounts can be carried forward to later years but may never be used for anything but reimbursements for qualified medical expenses.
For further information on HRAs including details on qualified medical expenses, see IRS Publication 969.