Health reimbursement accounts are a form of health insurance that provides reimbursements to employees who pay for qualified medical expenses. These type of accounts can be a cheap health insurance alternative as the employers fund the accounts and these funds are used to reimburse employees, the same way an insurance plan reimburses individuals for the costs of services. Health reimbursement accounts were designed to make up for the costs of health plans with high-deductibles.
Employers who choose to fund these types of accounts receive preferential tax breaks on funds contributed much like the way they qualify for tax benefits when funding traditional insurance plans. They can deduct the costs of health reimbursement accounts under the Internal Revenue Code section 162 as a business expense, which is beneficial to employers while providing a cheap health insurance alternative to employees.
Health reimbursement accounts are available to all companies no matter how many employees they may have, which is unlike accounts such as medical savings accounts that are available only to small business owners with limited numbers of employees.
When employees receive a medical expense that is covered under these accounts, a full reimbursement is given to the employee if funds are available until they are exhausted. Funds that are not used each year are rolled over to the next year. Retirees and former employees can continue to have access to any unused funds for reimbursement amounts although they do not provide reimbursement when employed by a new employer. Employees also have the opportunity to manage their own health care costs along with their employer.
Each year employers put aside money into the account to help pay for medical expenses for their employees. The money in the account is tax-free. If all the money is used, employees must pay the rest of their deductible out of their pockets. Funds are not transferable if employees switch jobs as they must forfeit the monies in the account.