401(h) vs HRA: How Retiree Medical Benefits Compare
HRAs and 401(h) accounts can both play a role in retiree medical strategies, but the regulatory homes, funding mechanics, and integration with retirement plans are very different.
Key takeaways
- HRAs are notional, employer-funded reimbursement arrangements governed by group-health rules.
- 401(h) accounts are funded sub-accounts inside a qualified pension or annuity plan.
- HRAs are widely used for active and retiree medical reimbursements; 401(h) is specifically tied to a qualified retirement plan structure.
- Choice between (or coordination of) the two is a plan-design conversation.
HRAs in brief
Health Reimbursement Arrangements are employer-established arrangements that reimburse employees for qualified medical expenses subject to plan terms. They are typically notional accounts — there is no individually held balance — and they are governed by the rules applicable to group health plans, including ACA market reforms where relevant.
401(h) in brief
A 401(h) account is a separate sub-account within a qualified pension or annuity plan. It is funded with employer contributions subject to actuarial methodology and the incidental-benefit limit, and it may pay defined retiree medical benefits in accordance with the plan document.
Key differences at a glance
The simplest framing: HRAs sit in the group-health world; 401(h) sits in the qualified-retirement-plan world.
- Regulatory home: group-health rules (HRA) vs qualified-plan rules (401(h)).
- Funding: typically notional/pay-as-you-go (HRA) vs pre-funded actuarially (401(h)).
- Vehicle: standalone employer arrangement (HRA) vs sub-account of a qualified plan (401(h)).
- Best fit: broad workforce reimbursement (HRA) vs structured retiree medical inside an existing DB/CB plan (401(h)).
Coordination considerations
Employers running both an HRA and a qualified retirement plan sometimes evaluate whether a 401(h) sub-account would add structural value on top of, or instead of, retiree HRA promises. The right answer depends on demographics, funding capacity, and the existing plan landscape — not on a single-axis comparison.
Frequently asked questions
Availability, tax treatment, and plan design depend on the facts and circumstances of the employer, plan document, participant group, and applicable law. 401h.com provides general educational information only — not tax, legal, actuarial, investment, or ERISA advice. Consult qualified tax, legal, actuarial, and plan professionals.
401h.com Editorial
401h.com
The 401h.com editorial team publishes plain-English explainers on 401(h) retiree medical benefit plans. Educational only — not tax, legal, actuarial, investment, or ERISA advice.
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