You are here: Home Finances Health ... Summary
Information about all aspects of finances affected by a serious health condition. Includes income sources such as work, investments, and private and government disability programs, and expenses such as medical bills, and how to deal with financial problems.
Information about all aspects of health care from choosing a doctor and treatment, staying safe in a hospital, to end of life care. Includes how to obtain, choose and maximize health insurance policies.
Answers to your practical questions such as how to travel safely despite your health condition, how to avoid getting infected by a pet, and what to say or not say to an insurance company.


An HRA is an employer established benefit plan that is funded solely by the employer.

  • The employer sets the maximum dollar amount for a coverage period.
  • There is no limit on the amount of money an employer can contribute to an HRA.
  • Contributions cannot be paid through a voluntary salary reduction agreement on the part of an employee.

Money in an HRA can never be used for anything except reimbursements to employees for qualified medical expenses.

  • The expense must have been incurred on or after the date you are enrolled in the HRA.
  • An employee cannot deduct qualified medical expenses as an itemized deduction that are reimbursed by a distribution from the HRA.

Amounts that remain at the end of the year cannot be refunded to employees. However, balances can generally be carried over to the next year.

At the employer's discretion, employees may take funds if  they leave the employer.

Funds are subject to COBRA. To learn more, see: COBRA.

Self employed people are not eligible for an HRA.

There is no requirement for administrators of the account to report contributions or distributions to the IRS.

For additional information, seeL

HRAs And Expenses Other Than Medical Expenses

If any distribution is, or can be, made for other than the reimbursement of qualified medical expenses, any distribution (including reimbursement of qualified medical expenses) made in the current tax year is included in gross income. For example, if an unused reimbursement is payable to you in cash at the end of the year, or upon termination of your employment, any distribution from the HRA is included in your income. This also applies if any unused amount upon your death is payable in cash to your beneficiary or estate, or if the HRA provides an option for you to transfer any unused reimbursement at the end of the year to a retirement plan.

If the plan permits amounts to be paid as medical benefits to a designated beneficiary (other than the employee's spouse or dependents), any distribution from the HRA is included in income.

People For Whom An HRA Works - Including People With A Serious Health Condition

  • In general, Health Savings Accounts (HSA) work for employees whether or not an employer offers an HSA, as well as for self employed people.
  • Contrary to popular belief, HSAs work well for people with a serious health condition or history of a serious health condition.

In General, People For Whom An HSA Works:

HSAs work for the following people who are under age 65:

  • Employees - whether the employer contributes to the HSA or the employee pays 100% of his or her health insurance premium.
  • People who are self-employed (who can also deduct 100% of health insurance premiums).
  • People with relatively high income who have the money to fund the plan and who can use the tax shelter.
  • People with a history of a serious health condition.
  • People with sufficient income to fund an HSA who need a low-deductible policy even though there is a more expensive premium. The wealthier you are and the longer you pay into the account without using it, the more you can benefit. An HSA can even supplement retirement money.

HSAs And People With A Serious Health Condition

Conventional wisdom has been that HSAs don’t work for people with a medical condition. An HSA may not become the same tax shelter it is for other people, but HSAs do work for people with a medical history because:

  1. If you have a managed care type policy, you have control over a good number of health care decisions such as which specialist to see and when. You also have a choice of which drugs to purchase rather than be concerned whether or not a drug is on a formulary.

  2. No matter what type of health plan you have, a high deductible generally provides savings on premium likely equal to the amount you put into the HSA. If you don’t spend all the money in a year, you come out ahead.

  3. From a tax point of view, medical expenses are not deductible until you spend at least an amount equal to the threshold. (The threshold for the itemized deduction for unreimbursed medical expenses is 10% of the taxpayer’s Adjusted Gross Income (AGI). However, in the years 2013–2016, if either the taxpayer or the taxpayer’s spouse has turned 65 before the close of the tax year, the threshold is 7.5% of AGI. In 2017 the 10% threshold will apply to all taxpayers.) Even then, the only expenses that are deductible are those which exceed the threshold. By using pretax dollars to fund an HSA, you effectively get the same benefit as if you deducted the expenses. Plus you have the benefit of a lower premium. (To learn more, see: Medical Expenses).

  4. If an employer contributes to the plan, you basically increase your income by the amount of those tax free dollars.

The Advantages Of An HRA

  • Contributions made by your employer can be excluded from your gross income for both federal income tax and employment tax purposes.
  • Reimbursements for qualified medical expenses are tax free.
  • Any unused amounts in the HRA can be carried forward for reimbursements in later years.

Qualified Medical Expenses For Purposes Of An HRA

For HRA purposes, qualified medical expenses include the following:

  • Amounts paid for health insurance premiums.
  • Amounts paid for long-term care coverage.
  • Amounts that are not covered under another health plan.
  • Expenses that would generally qualify for the medical and dental expenses deduction. See: Medical Expense.

NOTE: Starting in 2011, over the counter medications may only be paid from an HRA if you have a doctor's prescription. 

How An HRA Works

The employer places the described amount into an account for your benefit.

Debit cards, credit cards, and stored value cards can be used to reimburse you for eligible medical expenses. If the use of these cards meets certain substantiation methods, you may not have to provide additional information to the HRA.

If You Are Covered Under Both An HRA And A Health FSA

See Notice 2002-45, Part V, which is on page 93 of Internal Revenue Bulletin 2002-28 at offsite link.