What Is a Health Reimbursement Account in Health Insurance?

A health reimbursement account is an account that is set up with an Internal Revenue Service-qualified trustee to pay for certain medical expenses. Heath reimbursement accounts are also called flexible spending accounts, medical savings accounts and health savings accounts. Although the IRS regulates the rules surrounding these accounts, no permission from the IRS is needed to set up one.

Individual Accounts

• A health reimbursement account is an individual account usually set up in conjunction with a person's health insurance plan. Many companies and insurance providers offer these plans, although the specifics can vary by plan. A plan participant does not have to have other health care coverage to participate in a reimbursement plan, but the program is not open to self-employed individuals.

Contributions

• A person must designate how much she wants to contribute to the plan at the beginning of each year. The voluntary payments are then deducted from her paycheck, and plans can't be changed after the election is made unless an exception is allowed by the plan provider. The IRS does not have a contribution limit for individuals, but each company or plan provider can set a limit.

Qualifying Expenses

• Qualified medical expenses should be outlined in a company's health reimbursement account plan. Acceptable expenses include medical, dental, vision and medication costs. Non-qualifying expenses include premiums for insurance payments, expenses for long-term care and items and expenses covered under another type of health care plan.

Reimbursements and Payments

• Qualified medical expenses during the plan period are reimbursed through the plan. Plans offer different payment types, some require copies of medical receipts and issue a check to the plan-holder. Other plans give participants debit cards to use for medical expenses. Funds in a health reimbursement account must be used by the end of a calendar year; funds left in an account at the end of the plan year are not carried over and are lost, according to the IRS.

Tax Advantages

• No employment or federal income taxes are deducted from contributions to health reimbursement accounts. According to the IRS, reimbursement and payments from accounts are tax-free for qualified expenses, and money can be taken from an account for expenses exceeding the current amount in the account up to the total designated contribution. If contributions to a health reimbursement account are made by an employer, that amount does not count toward a person's gross income as reported on federal income taxes.