HRAs for Deceased Employees Cannot Be Paid to Survivors

Health reimbursement arrangements can provide a powerful health savings tool for employees.  However, employees should also be reminded that HRAs are not treated like HSAs.  Amounts accumulated in an HRA can only be used to reimburse employees for qualifying health expenses.  Therefore, when an employee dies with unused HRA funds, the employer cannot simply pay those funds out to a surviving spouse or relative.  Were an employer to pay the surviving spouse remaining HRA funds, the employer's entire HRA would be disqualified as an HRA.  That said, it's possible for HRAs to include a post-death spend-down feature, where remaining HRA funds can be used to pay for qualifying medical expenses of the deceased participant's surviving spouse and dependents.  However, employers should be cautious about allowing funds to be spent to reimburse individuals without their own qualifying health coverage given uncertainties created by IRS Notice 2015-87.  For more information on the rules governing HRAs, visit Tax Facts Online. Read More: Link to Q349 .