HRA Basics
What is an HRA? Health Reimbursement Arrangements (HRAs) are tax-advantaged arrangements that reimburse individuals for qualified healthcare costs. HRAs were first acknowledged by the IRS in 2002 as benefits that employers could offer current and former employees, including retirees.
Legislative and regulatory activity has since modified some of the rules about HRAs and created new types, including Group Benefit HRAs, Individual Coverage HRAs (ICHRAs), Qualified Small Employer HRAs (QSEHRAs), and Excepted Benefit HRAs (EBHRAs).
Funding
Employers fund HRAs to reimburse employees for qualified expenses. Contributions are not included in wages and do not affect income tax and payroll tax calculations.
Eligible Expenses
Eligible expenses for HRAs vary based on the HRA type. For Group Benefit HRAs, qualified healthcare costs typically involve Section 213(d) expenses for the diagnosis, treatment, mitigation, cure, or prevention of diseases and medical conditions affecting any body part.
For ICHRAs, QSEHRAs, and EBHRAs, eligible expenses typically include premiums for qualified individual insurance coverage and, at the employer's discretion, certain Section 213(d) expenses.
Employees may refer to the Summary Plan Description (SPD) to learn more about the eligible expenses covered by their HRA. The SPD document should outline all plan terms and conditions for participants and beneficiaries, including the plan start/end dates, qualified expenses, how to submit a claim, etc.
HRA Plan Types
Group Benefit HRA
The Basics
Group Benefit HRAs are integrated with a company-sponsored group health plan. In other words, employees must be enrolled in the group health plan to receive HRA reimbursements.
- Eligibility/Qualifying – This arrangement is available to current employees (and may be available to former employees in certain circumstances). The employer must offer a group health plan, but the plan does not have to satisfy cost-sharing minimums such as those required for HDHPs.
- Contributions – There is no federally mandated limit, but the sponsoring employer must set a contribution limit and a limited timeframe.
- Qualifying Medical Expenses – Employees may submit claims for payment of unreimbursed expenses, including those that satisfy IRS Code 213(d) definitions. Employers can restrict expenses, so refer to the SPD for the complete list.
- Unused Balance – Depending on plan setup, unused funds may carry forward, but employers who allow rollover may limit the aggregate amount. Unused funds generally return to the employer if an employee is no longer enrolled in qualifying coverage or an employment separation occurs.
Individual Coverage HRA (ICHRA)
- Eligibility/Qualifying – ICHRAs are available to current employees (and may be available to former employees in certain circumstances). Employees must enroll in individual market health coverage that meets Minimum Essential Coverage (MEC) requirements.
- Contributions – There is no federally imposed limit, but employers must set limits on reimbursement amount and timeframe. ICHRA funding, terms, and conditions must be the same for all employees within the same employee class, although they may vary based on age and family size.
- Qualifying Expenses – ICHRAs reimburse premium costs for qualified individual market health coverage. At the employer's discretion, they may also reimburse qualified medical expenses under IRS Section 213(d). Depending on plan setup, ICHRAs may reimburse for insurance premiums and qualified medical expenses for the employee's dependents as well who are also enrolled in qualifying individual market health coverage.
- Unused Balance – Unused balances may roll over, although employers may limit the aggregate carryover. Unused funds generally return to the employer if an employee is no longer enrolled in qualifying coverage or an employment separation occurs.
Qualified Small Employer HRA (QSEHRA)
QSEHRAs enable certain small employers to help employees pay premium costs for individual market health insurance policies that meet Minimum Essential Coverage (MEC) guidelines. At the employer's discretion, QSEHRAs can also reimburse qualifying medical expenses under IRS Section 213(d).
- Eligibility/Qualifying – To qualify as "small" for purposes of offering a QSEHRA, the employer must have fewer than 50 full-time-equivalent employees and not offer group health coverage. Employees must enroll in either individual or family market coverage that meets MEC requirements to be eligible for premium reimbursement.
- Contributions – QSEHRAs have federally mandated annual reimbursement limits. For 2025, they are $6,350 for employee-only coverage and $12,800 for family coverage. These are maximums, and employers may choose to contribute less. Regardless of the amount, QSEHRAs must be made available to all employees on the same terms, although amounts can vary based on employee age and family size.
- Qualifying Expenses – QSEHRAs reimburse premiums for qualified health insurance coverage. They may also reimburse qualified medical expenses under IRS Section 213(d). Depending on plan setup, QSEHRAs may also reimburse for premiums and qualified expenses for the employee's dependents who are also enrolled in qualified coverage.
- Unused Balance – Unused balances may roll over, although employers may limit the aggregate carryover. Funds carried over count against the following year's maximum annual limit. Unused funds generally return to the employer if the employee is no longer enrolled in qualifying coverage or an employment separation occurs.
Excepted Benefit HRA (EBHRA)
Established in 2019, EBHRAs are more limited in scope. Employers of any size may offer an EBHRA, which covers “excepted” benefits only, such as copays, deductibles, and premiums for vision and dental care. EBHRAs can also cover COBRA insurance, long-term care, and short-term care. If offered, they must be available to every employee on the same terms.
- Eligibility/Qualifying – EBHRAs are available to current employees (and may be available to former employees in certain circumstances). They can be offered by any employer that wants to provide an account-based supplement to their group health coverage without being constrained by the requirements for integrated HRAs. However, the employee cannot be required to enroll in the group health coverage to receive EBHRA benefits.
- Contributions – EBHRAs have federally mandated annual limits. For 2025, the annual limit is $2,150, but employers may set a lower limit.
- Qualifying Expenses – EBHRAs can be used reimburse qualified medical expenses under IRS Section 213(d). Like other benefits, employers may restrict the expenses eligible for reimbursement. EBHRA funds cannot be used to reimburse premiums for individual health coverage, Medicare, or non-COBRA group health coverage.
- Unused Balance – Unused balances may roll over, although employers may limit the aggregate carryover. Unused funds generally return to the employer if an employee is no longer enrolled in qualifying coverage or an employment separation occurs.
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