HRA for Retirees

Health Reimbursement Arrangements (HRAs) designed for retirees represent a distinct benefit structure that employers can use to fund post-employment medical costs on a tax-advantaged basis. This page covers the definition and regulatory scope of retiree HRAs, how funds flow and qualify for reimbursement, common scenarios in which retirees encounter these accounts, and the decision boundaries that determine whether a retiree HRA is appropriate compared with alternatives. Understanding the rules governing these arrangements is essential because the interaction with Medicare, other coverage types, and IRS reimbursement rules creates conditions that differ substantially from active-employee HRAs.

Definition and scope

A retiree HRA is an employer-funded account that reimburses former employees for qualified medical expenses incurred after retirement. Unlike Health Savings Accounts (HSAs), the retiree HRA is funded exclusively by the employer — no employee or retiree contributions are permitted (IRS Publication 969). Because the account is employer-owned, balances belong to the plan sponsor and are subject to the employer's design choices regarding carryover, forfeiture, and benefit caps.

The Internal Revenue Code governs the tax treatment of these accounts under IRC §§ 105 and 106, which exclude employer-paid reimbursements for medical care from the employee's gross income. For the regulatory context for health savings that frames all HRA types, including retiree-specific variants, federal guidance from the IRS and the Departments of Labor, Health and Human Services, and Treasury jointly establishes the compliance baseline.

Retiree HRAs are not subject to HIPAA portability requirements in the same way active-employee plans are, but they must comply with the Affordable Care Act's nondiscrimination rules as applicable to their plan classification. Group health plan status — and whether the arrangement qualifies as excepted benefits — determines which ACA mandates apply. The types of HRAs including QSEHRA, ICHRA, and traditional arrangements page provides the broader classification framework within which retiree HRAs sit.

How it works

Employer funding mechanics follow a straightforward sequential structure:

1. Plan design: The employer establishes a written plan document specifying eligibility criteria (typically tied to years of service or age at retirement), the annual or lifetime benefit cap, and which expense categories qualify for reimbursement.
2. Account crediting: At retirement — or on a schedule defined in the plan — the employer credits the retiree's HRA with a specified dollar amount. A common structure credits a fixed annual sum (for example, $1,800 per retiree) or a lump sum at separation.
3. Expense submission: The retiree submits claims with documentation (Explanation of Benefits statements, itemized receipts) to the plan administrator or third-party administrator.
4. Reimbursement: The administrator reviews the claim for compliance with the plan's qualified expense list, then issues reimbursement — typically by check or direct deposit — tax-free to the retiree.
5. Carryover or forfeiture: At year-end, unused balances either carry forward to the next plan year (if the plan document allows) or are forfeited back to the employer.

Qualified expenses mirror the definition in IRC § 213(d), which includes premiums for Medicare Parts A, B, C (Medicare Advantage), and D, as well as Medigap supplemental premiums and out-of-pocket costs like deductibles and copayments. This is a meaningful advantage for retirees: Medicare premium reimbursement through an HRA is explicitly permitted under IRS guidance, whereas HSA funds used for Medicare premiums follow a separate, more restricted set of rules.

The home page for this resource provides an orientation to the full landscape of tax-advantaged health accounts, situating the retiree HRA within the broader ecosystem of HSAs, FSAs, and other HRA types.

Common scenarios

Scenario 1 — Defined-benefit employer plan with Medicare-eligible retirees
A large municipal employer credits $2,400 annually to each retiree's HRA upon separation after 20 or more years of service. Retirees enrolled in Medicare Parts A and B submit monthly premium statements. The HRA reimburses $170.10 (the standard 2024 Medicare Part B premium per CMS Medicare costs data) each month, exhausting most of the annual credit by mid-year. Remaining balances cover Part D premiums or dental expenses if the plan document includes them.

Scenario 2 — Employer terminating active group coverage at retirement
A mid-sized private employer eliminates active group health coverage at retirement but establishes a retiree HRA to help bridge pre-Medicare gaps. Retirees aged 62 to 64 use HRA funds to reimburse premiums for individual market coverage purchased through the ACA marketplace or directly from insurers. The employer sets a lifetime cap of $24,000 per retiree rather than an annual limit, which requires careful plan document drafting to avoid inadvertent ACA compliance issues.

Scenario 3 — Retiree HRA coordinating with spouse's active-employer coverage
A retiree covered as a dependent under a spouse's active employer plan may still receive HRA reimbursements for cost-sharing expenses, but cannot use those funds to reimburse premiums for coverage under the spouse's employer plan (those premiums are excluded from IRC § 213(d) qualified expenses in that context). Plan administrators frequently flag this coordination issue.

Decision boundaries

The appropriateness of a retiree HRA versus other structures depends on identifiable criteria:

Retiree HRA vs. HSA at retirement
An individual enrolled in Medicare is ineligible to contribute to an HSA (IRS Publication 969). A retiree HRA funded by a former employer, however, can coexist with Medicare enrollment without penalty. The HSA vs. HRA distinction is therefore not a choice for Medicare-enrolled retirees — only the HRA remains viable as a new funding vehicle, though existing HSA balances can still be spent.

Retiree HRA vs. ICHRA
An Individual Coverage HRA (ICHRA) can be offered to retirees under the same regulatory framework established by the 2019 final rule from HHS, DOL, and Treasury. The functional difference is structural: a traditional retiree HRA may impose plan-level eligibility distinctions (by service years or retirement age) that ICHRA design rules handle differently. Employers with retiree populations spanning both pre-Medicare and Medicare-eligible individuals often find traditional retiree HRA design more flexible for that mixed-age cohort.

When a retiree HRA is not suitable
Three conditions typically disqualify the arrangement:
- The employer has no existing legal obligation or plan document establishing the benefit — retiree HRAs cannot be established retroactively without documented plan terms.
- The retiree received a lump-sum buyout in lieu of retiree benefits, which closes the employer's obligation.
- The plan document requires active employment status, leaving separated employees without access.

Employers with fewer than 50 full-time employees considering retiree coverage alternatives should also evaluate the QSEHRA, which carries its own distinct eligibility and contribution cap rules under IRC § 9831(d).

References

• IRS Publication 969 — Health Savings Accounts and Other Tax-Favored Health Plans
• Internal Revenue Code § 213(d) — Definition of Medical Care (via Cornell LII)
• Internal Revenue Code § 105 — Amounts Received Under Accident and Health Plans (Cornell LII)
• Internal Revenue Code § 106 — Contributions by Employers to Accident and Health Plans (Cornell LII)
• Federal Register — Health Reimbursement Arrangements and Other Account-Based Group Health Plans (Final Rule, June 2019)
• CMS — Your Medicare Costs
• IRS Notice 2002-45 — Health Reimbursement Arrangements
• U.S. Department of Labor — Health Plans and Benefits: HRAs

The law belongs to the people. Georgia v. Public.Resource.Org, 590 U.S. (2020)