Does an HRA require an HDHP?

When researching cost-effective health benefit solutions for your organization, you've probably come across health reimbursement arrangements (HRAs) and high deductible health plans (HDHPs).

When combined, these two options can help employers reduce overall healthcare spending. Still, employers may wonder how HRAs can work with either individual or group health coverage and if using an HRA requires an HDHP.

In this article, we'll define HDHPs and HRAs. We'll also explain if you need an HDHP to implement an HRA at your organization.

In this blog post, you'll learn:

• The tax advantages of HRAs.
• Whether you need an HDHP to offer an HRA.
• How HRAs work with group health insurance plans.

What is an HDHP?

A high deductible health plan (HDHP) is a medical plan with lower monthly premiums and a higher deductible than standard health plans. Insurance companies generally don't cover out-of-pocket expenses until the employee meets their annual deductible or reaches their out-of-pocket maximum.

For 2026¹, the Internal Revenue Service (IRS) classifies HDHP coverage as having a plan with a minimum deductible of $1,700 for single coverage and $3,400 for family coverage. An HDHP's maximum annual out-of-pocket medical expenses, including annual deductibles, copays, and coinsurance, can't be more than $8,500 for single coverage or $17,000 for family coverage.

Many organizations pair HDHPs with health savings accounts (HSAs). An HSA, not to be confused with an HRA, is an employee-owned fund. It offers tax advantages since employees can save money for out-of-pocket medical expenses on a pre-tax basis. However, employees can only set aside a limited amount of pre-tax dollars due to annual contribution limits.

While HSAs help offset the deductible and other medical expenses that come with HDHPs, you must offer a group HDHP, or participants must have an individual HSA-qualified HDHP, for you to make contributions to your employees' HSAs. Additionally, HSAs are portable, meaning that HSA funds stay with your employees even if they leave the company.

The overall advantages of HDHPs are:

• Offers premium savings
• HSA eligibility with specific HSA-qualified HDHP plans
• Larger provider networks

It’s also worth noting that on-exchange Bronze individual and small group market plans (as well as their off-exchange equivalents) are now considered HDHPs for HSA eligibility purposes.

If you choose an HDHP, your employees will still be 100% covered for preventive care from in-network providers before meeting their deductible due to Affordable Care Act (ACA) requirements. So, if you have a workforce that's generally young and healthy, an HDHP is a good way for them to receive basic medical care while you save money overall.

What is an HRA?

A health reimbursement arrangement (HRA), sometimes mistakenly referred to as a health reimbursement account, is an employer-funded health benefit. HRAs allow employers to reimburse employees for more than 200 types of qualified medical expenses. Depending on the type of HRA you offer, this can include expenses such as individual health insurance premiums.

Other HRA-eligible expenses include:

• Prescription drugs
• Over-the-counter medicine
• Dental expenses
• Vision expenses
• Preventative care

HRAs are a flexible form of health coverage because they allow employers to set an allowance amount that fits their budget, while employees purchase the healthcare items and services that best suit their needs. Once they submit documentation for their eligible expense, employers reimburse them for the cost.

With HRAs, employers reimburse employees only after the employees incur an approved medical expense. This feature is beneficial for employers who want to retain control over their cash flow. Additionally, unused funds stay with the employer if the employee quits.

The overall advantages of HRAs are:

• Budget control. Employers set a monthly allowance for their employees.
• Tax benefits. Reimbursements are tax-free to employers and employees.
• Employee satisfaction. Employees can choose the health plans that work best for them.

Does a stand-alone HRA require an HDHP?

Many employers offer stand-alone HRAs as alternatives to employer-sponsored group health insurance coverage. With a stand-alone HRA, employees can use their employer contributions to enroll in individual health insurance plans that best fit their needs. If you offer a stand-alone HRA instead of a group plan, it doesn’t require an HDHP.

The two most popular stand-alone HRAs you can offer are the individual coverage HRA (ICHRA) and qualified small employer HRA (QSEHRA). Like HSAs, QSEHRAs come with annual limits for employer contributions. ICHRAs don't.

Instead of requiring an HDHP, a QSEHRA only requires employees to have minimum essential coverage (MEC). ACA marketplace plans and coverage through a parent’s or spouse’s group plan satisfy this requirement. For an ICHRA, employees must have qualified individual health insurance plans. This includes Medicare Parts A and B or Part C, but not group plans.

Does an integrated HRA require an HDHP?

A group coverage HRA (GCHRA), also known as an integrated HRA, is a tax-advantaged arrangement employers can pair with group health coverage to help employees pay for qualified health expenses and out-of-pocket costs that aren't fully covered by your traditional group health plan.

Unlike HSAs, you don't need an HDHP to use a GCHRA. You can supplement any group health insurance plan with a GCHRA.

If your traditional group health plan comes with annual rate hikes and premiums, but you don't want to cancel it and switch to an HRA, then a GCHRA is for you. When you pair it with an HDHP, it can help keep your medical costs down while providing great employee benefits. This HRA can bridge the gap between offering traditional group health insurance plan coverage and minimizing premium costs in these cases.

The overall advantages of combining an HDHP with a GCHRA are:

• Unique capabilities to set HRA deductibles, cost-sharing, and coinsurance
• Lower overall healthcare costs using an HDHP
• Offset employee out-of-pocket expenses with HRA funds

Conclusion

Some HRAs only work with individual health insurance plans, but GCHRAs are more flexible. You can pair them with any group health plan, and when combined with a high deductible health plan (HDHP), they can help employers reduce premiums and overall healthcare spending as part of a broader healthcare strategy.

Interested in offering an HRA as part of your employee benefits package? PeopleKeep by Remodel Health can help! Schedule a call with an HRA specialist today to get started.

This article was originally published on January 14, 2021. It was last updated on April 24, 2026.

References

1. IRS: Rev. Proc. 2025-19