With a Health Reimbursement Arrangement (HRA), the employer funds an account from which the employee is reimbursed for qualified medical expenses, such as co-pays, deductibles, vision care, prescriptions, premiums for long-term care and medical insurance, and most dental expenses. Reimbursements are not taxed to the employee, and they are deductible by the employer.
In contrast to the "use-it-or-lose-it" rule of flexible spending accounts, the employee can carry forward any unused HRA account funds. Employees may request reimbursement for medical expenses at the time services are rendered, accumulate them for reimbursement in the future, or save the funds in the HRA for retiree health benefits.
HRAs can enhance a company's benefit package while helping to contain costs and boost employee morale. For example, you can combine your HRA with a higher-deductible health insurance plan. The employer benefits from reduced insurance costs, but the effect to the employee is cushioned with an HRA.