Retiree health reimbursement arrangement (retiree HRA)

What a retiree HRA is

A retiree health reimbursement arrangement (sometimes called a retiree-only HRA) is an HRA an employer offers specifically to former employees who have retired. The employer sets aside funds to reimburse retirees, tax-free, for qualified medical expenses and premiums — commonly Medicare-related premiums. It's a way to honor a commitment to retirees with a predictable, controlled budget.

What it can reimburse

• Medicare Part B and Part D premiums
• Medicare Supplement (Medigap) premiums
• Medicare Advantage premiums
• Other qualified out-of-pocket medical expenses

Why employers offer one

A retiree HRA lets an employer support retirees with a fixed, predictable budget instead of an open-ended group retiree health plan. Retirees get tax-free help with Medicare and medical costs, and the employer controls the spend and avoids the long-tail liability of a traditional retiree plan.

How it works

The employer funds an allowance for eligible retirees, who submit proof of their Medicare coverage and premiums (or other eligible expenses). The employer reimburses them tax-free up to the allowance. Because it's funded and owned by the employer, unused amounts stay with the company unless the plan allows rollover.

Retiree HRA vs. active-employee HRA

A retiree-only HRA is exempt from some of the rules that apply to HRAs for active employees, which makes it simpler to administer. For active, Medicare-eligible employees, an ICHRA can also reimburse Medicare premiums — so the choice comes down to whether the person is still working (ICHRA) or retired (retiree HRA).

Funding approaches

Employers can fund a retiree HRA on a pay-as-you-go basis (reimbursing as retirees incur costs) or set notional account balances retirees draw down over time. The right approach depends on your goals and accounting; a broker or benefits advisor helps structure it.

Who it's for

Retiree HRAs suit employers who want to provide meaningful, tax-free post-employment health support — often centered on Medicare — without the cost and unpredictability of a traditional retiree group plan. They're especially useful as a modern replacement for legacy retiree medical commitments.

Retiree HRAs and Medicare

A common use of a retiree HRA is helping Medicare-eligible retirees with their costs. A properly designed retiree HRA can typically reimburse Medicare premiums — Part B, Part D, Medicare Advantage, and Medigap — along with other qualified medical expenses, which active-employee ICHRAs handle more restrictively.

Tax treatment for retirees

Like other HRAs, reimbursements from a retiree HRA are generally tax-free to the retiree, and the employer sets the funding. That makes it an efficient way to support former employees without adding taxable income to their retirement.

Setting one up

A retiree HRA needs a written plan document defining who is eligible, what it reimburses, and how it is funded — whether pay-as-you-go or pre-funded. Because retiree benefits carry their own accounting and legal considerations, it is worth setting up with professional guidance.