A VEBA health reimbursement account is money your employer sets aside in a tax-exempt trust to pay you back, tax-free, for medical expenses you incur while working and after you retire. The trust is a Voluntary Employees’ Beneficiary Association organized under Internal Revenue Code Section 501(c)(9), and the reimbursement piece works like a Health Reimbursement Arrangement: you pay a qualifying medical bill, submit a claim, and get the money back without owing tax on it.1Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. Three things move in your favor at once. Employer contributions go in deductible to the company, investment earnings grow tax-free inside the trust, and reimbursements come out tax-free to you under IRC Section 105(b).2Office of the Law Revision Counsel. 26 USC 105 – Amounts Received Under Accident and Health Plans Few benefit structures achieve all three.
How the Account Works
Your employer funds the trust. Once the money is in, it stays there for employees. The employer can’t take it back, even if the company’s financial situation changes, because Section 501(c)(9) prohibits any portion of trust earnings from benefiting the employer or any private individual.1Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. The trust is a legally separate entity from your employer’s business, so the assets sit in their own protected pool rather than on the company’s balance sheet.
Investment earnings inside the trust are “exempt function income” so long as they’re set aside to pay life, health, or accident benefits to members. If the trust generates income beyond what’s set aside for benefits, that excess is subject to unrelated business income tax.3eCFR. 26 CFR 1.512(a)-5 – Questions and Answers Relating to the Unrelated Business Taxable Income of Organizations Described in Paragraphs (9) or (17) of Section 501(c) For you as a participant, the practical effect is that the balance can grow over years of employment without an annual tax drag.
What You Can Get Reimbursed For
The baseline is IRC Section 213(d), which defines “medical care” as amounts paid for diagnosis, treatment, or prevention of disease, transportation essential to receiving care, qualified long-term care services, and insurance premiums covering medical care.4Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses IRS Publication 502 has the detailed breakdown.5Internal Revenue Service. Publication 502 – Medical and Dental Expenses
The categories participants use most often:
- Out-of-pocket medical costs including deductibles, copayments, and coinsurance
- Prescription drugs and medical equipment such as hearing aids, wheelchairs, and prosthetics
- Dental and vision care, including exams, eyeglasses, contact lenses, and dental treatment
- Health insurance premiums, Medicare Parts A, B, and D, and Medicare Supplement premiums5Internal Revenue Service. Publication 502 – Medical and Dental Expenses
- Long-term care insurance premiums, eligible up to IRS age-based limits that adjust each year (for 2026, the range runs from $500 for those age 40 and under to $6,200 for those over 70)
- Mental health and therapy, including psychiatric care, psychologist visits, and substance abuse treatment
The specific plan document can narrow this list. Your employer may exclude certain categories or limit reimbursement to expenses above a threshold. Check your plan’s terms rather than assuming every Section 213(d) expense is covered.
What Doesn’t Qualify
Some expenses that feel health-related don’t make the cut. Gym memberships, fitness programs, and exercise equipment are out unless a physician prescribes them for a specific diagnosed condition. Cosmetic surgery doesn’t qualify unless it corrects a deformity from a congenital abnormality, injury, or disfiguring disease. Vitamins and nutritional supplements taken for general health are excluded, as are weight-loss foods.5Internal Revenue Service. Publication 502 – Medical and Dental Expenses Other common rejections: funeral expenses, maternity clothes, teeth whitening, childcare for a healthy baby, and household help unless it qualifies as long-term care. Controlled substances that violate federal law are excluded regardless of state legality.
Filing a Claim
Once you’ve paid an eligible expense, you submit a claim to the VEBA’s third-party administrator. Most administrators accept claims through an online portal, a mobile app, or a paper form. Include documentation that proves the expense: an Explanation of Benefits from your insurer, or an itemized statement from the provider showing patient name, date of service, description of service, and the amount you owe.
You’ll certify that the expense wasn’t reimbursed by any other source. If an insurer already paid part of the bill, you submit only the remainder. Processing typically takes about five to seven business days when documentation is complete, though timing varies by administrator. Reimbursement usually arrives by direct deposit, with paper checks as a slower alternative.
If a claim is denied, the administrator must send a written explanation with the specific reason. Incomplete documentation and ineligible expenses are the two most common causes. You can appeal, and the plan document spells out the internal appeal process, including deadlines for submitting your request and any additional documentation.6eCFR. 29 CFR 2560.503-1 – Claims Procedure For plans covered by ERISA, you generally have to exhaust the internal appeals process before pursuing external review or legal action.7U.S. Department of Labor. Benefit Claims Procedure Regulation FAQs
If You Also Want an HSA
A standard VEBA HRA creates a compatibility problem with Health Savings Accounts. To contribute to an HSA, you need to be enrolled in a high-deductible health plan and have no other first-dollar coverage. A VEBA that reimburses all medical expenses from the first dollar counts as disqualifying coverage, which makes you ineligible for HSA contributions.
The workaround is electing “limited HRA coverage.” Under this option, the VEBA restricts reimbursements to dental, vision, and orthodontia expenses and premiums, plus high-deductible health plan premiums. Because the limited HRA doesn’t cover general medical expenses before your deductible is met, it doesn’t conflict with HSA eligibility.
For 2026, HSA contribution limits are $4,400 for self-only coverage and $8,750 for family coverage. The minimum HDHP deductible is $1,700 (self-only) or $3,400 (family), and the out-of-pocket maximum is $8,500 (self-only) or $17,000 (family).8Internal Revenue Service. Revenue Procedure 2025-19
If your circumstances change and you stop contributing to an HSA, you can switch your VEBA back to full coverage and claim all eligible medical expenses again. Someone might use the limited HRA while working and building HSA savings, then revert to full coverage in retirement when HSA contributions stop.
What Happens When You Leave or Retire
The balance stays in the trust. Because VEBA funds can’t revert to the employer, your accumulated balance remains available for reimbursement after you leave the job or retire.1Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. This is where the account becomes especially valuable: retirees can use the funds to cover Medicare premiums, supplemental insurance costs, prescription copays, dental work, and any other Section 213(d) expense.
What catches people off guard is that VEBA funds are not portable the way a 401(k) is. You can’t roll the balance into a new employer’s health plan, transfer it to an HSA, or withdraw it as cash. The money can only leave the trust as reimbursement for a qualified expense, processed through the administrator’s normal claim procedure. There’s no cash-out option, even at separation.
The lack of portability is the trade-off for the tax benefits. The money is locked into medical expenses permanently. For someone with ongoing health costs in retirement, that’s not much of a limitation. For someone who leaves employment healthy and young with a modest balance, the restriction feels more constraining, though the funds remain available indefinitely for any future qualifying expense.
What Happens When a Participant Dies
Plan documents specify how remaining funds are handled at death. The typical structure gives first priority to a surviving spouse, who can continue submitting claims for their own eligible medical expenses until the balance is exhausted. Qualified dependents generally remain eligible for coverage during this period. Reimbursements to a surviving spouse and dependents stay tax-free.
If there’s no surviving spouse, the balance usually passes to surviving children, then to designated beneficiaries, according to the plan’s priority rules. Survivors can only claim reimbursement for their own medical expenses, not for the expenses of their own spouses or dependents.
Reimbursements to beneficiaries who are not a spouse or dependent of the original participant are typically taxable income to the recipient. If no eligible beneficiary exists and no claims remain outstanding, the remaining funds are generally forfeited and redistributed within the VEBA trust, often used to reduce future employer contributions or fund benefits for other participants. Designating a beneficiary is worth doing even if it feels like a formality: without one, the funds may eventually be absorbed back into the trust rather than covering a family member’s medical bills.