New guidance for health reimbursement arrangements. (IRS News).

IRS Notice 2002-45 and Rev.Rul. 2002-41 offer new guidance for employer-provided health reimbursements arrangements.

Reimbursements are deductible by employers but are not taxable to employees. An HRA is an arrangement that:

* Is paid for solely by the employer and not provided pursuant to a salary reduction election (or otherwise) under a Sec. 125 cafeteria plan;

* Reimburses the employee for substantiated medical care expenses [as defined in Sec. 213(d)] incurred by the employee and the employee's spouse and dependents (as defined in Sec. 152);

* Provides reimbursements up to a maximum dollar amount for a coverage period; and

* Allows any unused portion of the maximum dollar amount at the end of a coverage period to be carried forward to increase the maximum reimbursement amount in subsequent coverage periods.

Thus, the "use it or lose it" rule imposed on medical flexible spending accounts does not apply to HRAs.

To the extent an HRA is a self-insured medical expense reimbursement plan, Sec. 105(h)'s nondiscrimination rules apply. Also, HRAs are group health plans generally subject to COBRA continuation requirements.