HRA Legislative History

Health Reimbursement Arrangements Legislative History

Rev. Rul. 2005-24 (April 6, 2005)

Issue: Are amounts paid to an employee under a reimbursement plan that provides for the payment of unused reimbursement amounts in cash or other benefits excludable from gross income under § 105(b) of the Internal Revenue Code?

Holding: Amounts paid to an employee under a reimbursement plan that provides for the payment of unused reimbursement amounts in cash or other benefits are not excludable from gross income under § 105(b).

This ruling applies to any purported employer-provided medical reimbursement arrangement, regardless of how the arrangement is characterized, that provides for the receipt by the employee or any other person of cash or any other taxable or nontaxable benefit or any combination of such benefits other than the reimbursement of medical care expenses. Moreover, this ruling applies to employer-provided reimbursement arrangements that are limited only to retired employees, as well as to employer-provided arrangements that cover active employees or both active employees and retirees.

Rev. Rul. 2002-41 (June 26, 2002)

On June 26, 2002, the Office of Public Affairs issued Press Release PO-3204 clarifying the tax treatment of Health Reimbursement Arrangements (HRAs). The guidance, consisting of the below notice and revenue ruling, provides that medical benefits paid by HRAs meeting certain requirements are not taxable, and generally are not subject to the design requirements for Code § 125 Health FSAs.

HRA primary requirements are:

The plan must be funded solely by the employer and cannot be funded by salary reduction.
The plan can only provide benefits for substantiated medical expenses.

The guidance provides the following:

HRAs . . . can allow the carryover of unused amounts to later years (i.e., the "use-it-or-lose-it rule" does not apply).
HRAs . . . can reimburse employees for the purchase of health insurance.
HRAs . . . may allow former employees, including retirees, continued access to unused reimbursements.
HRAs . . . may provide that an FSA funded by salary reduction reimburses expenses before the HRA.
HRAs . . . are group health plans subject to the COBRA continuation requirements.

Issue: Whether employer-provided coverage and medical care expense reimbursements made under a reimbursement arrangement that allows unused amounts to be carried forward, as described in Situations 1 and 2 below, are excludable from gross income under §§ 106 and 105 of the Internal Revenue Code, respectively.

Holding: Employer-provided coverage and medical care expense reimbursements made under the reimbursement arrangement that allows unused amounts to be carried forward, as described in Situations 1 and 2, are excludable from gross income under §§ 106 and 105, respectively.

IRS Notice 2002-45 (June 26, 2002)

Purpose: This notice provides basic information about a type of employer-provided health reimbursement arrangement (HRA) described below.

Part I. Description of HRAs and their general tax treatment.
Part II. Benefits that may be offered under HRA.
Part III. Details of those who may be covered under HRA.
Part IV. Interaction between HRAs and § 125 cafeteria plans.
Part V. Ordering rules for reimbursement from HRAs and § 125 Health FSAs.
Part VI. Applicability of § 105(h) non-discrimination rules to HRAs.
Part VII. COBRA continuation coverage under HRAs.
Part VIII. Miscellaneous