An HRA (Health Reimbursement Arrangement) allows employers to reimburse a wide range of out-of-pocket medical expenses incurred by their employees. The reimbursements are tax-deductible for employers and are not taxable to employees.
An employer gives an employee a fixed amount each month in a notional HRA account. As the employee incurs medical expenses, she submits her receipts for reimbursement, the amounts are deducted from the HRA balance, and the employer reimburses the employee. Unspent funds accumulate and can be rolled over from year to year.
For example, if an employee receives $100 per month during the year and incurs $500 worth of expenses, then she would have $700 of unspent funds available to roll over into the next year.