Can You Cash Out a Health Reimbursement Account?

A Health Reimbursement Arrangement (HRA) is an employer-funded health benefit plan designed to assist employees with qualified medical expenses. This arrangement provides tax-advantaged funds that can be used to cover various healthcare costs, helping individuals manage their out-of-pocket medical expenditures.

The Nature of HRA Funds

It is not possible to directly “cash out” funds from a Health Reimbursement Arrangement. HRA funds are not employee-owned assets; they remain the property of the employer. These funds are set aside specifically for the reimbursement of eligible healthcare costs incurred by the employee.

An HRA functions as a notional account, meaning funds are not physically held in an individual bank account for the employee, unlike a Health Savings Account (HSA). The money is accessible only for reimbursement purposes, adhering to the employer’s HRA plan document and Internal Revenue Service (IRS) regulations. Employees cannot withdraw HRA funds for non-medical purposes or receive them as taxable income.

The employer maintains control over the funds, which are disbursed upon submission of valid claims for qualified medical expenses. This distinguishes HRAs from personal savings accounts, ensuring funds are used exclusively for their intended healthcare purpose.

What Happens to Unused HRA Balances

Rules for unused HRA balances are determined by the employer’s plan design. Some HRA plans include a “rollover” provision, allowing employees to carry over unused funds from one plan year to the next. This can allow balances to accumulate, potentially providing a larger pool of funds for future medical expenses. The amount that can be rolled over may be capped by the employer.

Other HRA plans operate on a “use-it-or-lose-it” basis. Under this structure, any funds not utilized by the end of the plan year are forfeited and do not carry over to the subsequent year.

Upon termination of employment, HRA funds are typically forfeited. Since the funds remain the employer’s property, they are not portable or accessible once the employment relationship ends. Some plans, however, might offer a limited window, such as 90 days, for employees to submit claims for expenses incurred prior to their termination date.

Eligible Uses of HRA Funds

While HRA funds cannot be cashed out, they can be utilized to reimburse a variety of qualified medical expenses. These expenses generally include out-of-pocket costs such as deductibles, co-payments, and co-insurance amounts associated with health insurance plans. Prescription medications are also commonly eligible for reimbursement through an HRA.

Beyond these common examples, HRA funds can cover a broader range of medical, dental, and vision care expenses. This might include costs for eyeglasses, contact lenses, dental treatments, or certain over-the-counter medications if prescribed by a doctor. The specific list of reimbursable expenses is outlined in the employer’s HRA plan document, which usually aligns with guidelines from Internal Revenue Service Publication 502.