How A Group Coverage HRA And An HSA Compare

Written by Elizabeth Walker | August 15, 2025 at 2:30 PM

Are you looking to supplement your employer-sponsored group health plan to help your employees pay for their out-of-pocket medical costs? In that case, you have two options: a group coverage health reimbursement arrangement (GCHRA) or a health savings account (HSA).

A GCHRA works alongside traditional group health insurance, allowing employers to reimburse employees for out-of-pocket medical expenses tax-free. On the other hand, HSAs help employees with qualifying high deductible health plans (HDHPs) save money for future healthcare. But how do you know which health benefit is right for your company?

The article below explains GCHRAs and HSAs in more detail, so you can make an informed decision and choose the option that best supports your employees’ needs.

In this blog post, you’ll learn:

The key differences between a group coverage health reimbursement arrangement (GCHRA) and a health savings account (HSA).

The benefits, limitations, and tax advantages of each option, and how they impact employers and employees.

When it makes sense to offer a GCHRA or an HSA based on your budget, long-term goals, and employees’ health needs.

How does an HSA work?

An HSA is a tax-advantaged account that allows individuals to save pre-tax money for qualified healthcare costs. An individual or employer can open an HSA. However, even if the HSA is a part of an employer’s benefits package, the individual always owns the account, and they can take it and 100% of their employer’s contributions with them if they leave their organization.

Employees and individuals must have an HSA-qualified HDHP to contribute to the account.

According to the Internal Revenue Service (IRS), HSA-qualified HDHPs must meet the following requirements:

The plan must have annual limits on deductibles and out-of-pocket medical costs.
1. In 2025, the minimum deductible for HSA-qualified HDHPs is $1,650 for self-only coverage and $3,300 for family coverage. The annual out-of-pocket maximum is $8,300 for self-only plans and $16,600 for family policies.
Participants can’t have any other health coverage (employer-sponsored or individual) except for the plans listed in IRS Publication 969¹. As of 2026, direct primary care agreements will also be an exception due to the One Big Beautiful Bill Act (OBBBA)².
Enrollees must be ineligible for a general-purpose flexible spending account (FSA).
No one else can claim the plan participant as a dependent on their tax return.
Plan holders can’t enroll in Medicare Parts A & B or Medicaid.

Additionally, as part of the OBBBA, all bronze and catastrophic plans sold on public health exchanges now qualify as HSA-eligible HDHPs.

Other highlights of an HSA:

Both employees and employers can contribute pre-tax dollars to the HSA. However, the combined funds can’t exceed the IRS’s annual maximum contribution limit.
IRS Publication 502 outlines all the qualified medical expenses an HSA can cover³. Examples of eligible costs include prescription drugs, doctor visits, over-the-counter medicine, and dental and vision care.
Annual HSA funds and investment gains are 100% tax-free.
Individuals can withdraw tax-free HSA funds at any time to pay for medical costs without incurring penalties or fees. However, those younger than 65 are subject to a 20% penalty if they spend their dollars on non-health-related items. They must also pay income taxes on these purchases.
Most HSA banks and providers issue individuals an HSA debit or credit card when they open their account. This allows them to easily pay for medical services and items online, in stores, and at healthcare providers.

How does a GCHRA work?

A GCHRA is a tax-free reimbursement benefit that helps employees pay for qualified medical expenses that their group health plan doesn’t fully cover. You can find the list of eligible HRA expenses in IRS Publication 502 and the CARES Act⁴.

Rather than pre-funding a savings account, the employer offers employees a monthly tax-free allowance to buy medical care, such as deductibles and copayments. After making an eligible purchase, employees submit claim documentation, usually in the form of a receipt or invoice. Once the employer or HRA administrator reviews and approves the proof of purchase, they reimburse the employee up to their set allowance amount.

Other highlights of a GCHRA:

A GCHRA will work with any group health insurance plan, including low-deductible health plans (LDHPs). However, only employees enrolled in your group plan can participate.
HRAs are employer-owned, and only employers can contribute to them. Unused HRA funds stay with you when an employee leaves your company.
You can design your GCHRA benefit to reimburse only certain expenses. For example, an employer may decide to reimburse medical and dental costs but not vision care. By law, premiums are ineligible for reimbursement. Only stand-alone HRAs can reimburse employees for premiums.
The GCHRA has no minimum or maximum contribution limits. But for even greater flexibility, you can offer different allowance limits and set specific eligibility rules using age, family status, and seven job-based employee classes.
Employees who leave your company have 90 days to submit qualified medical expenses for reimbursement that they incurred while employed.

GCHRA vs. HSA comparison chart

The chart below compares a few key differences between the GCHRA and the HSA side by side.

	Group coverage health reimbursement arrangement (GCHRA)	Health savings accounts (HSA)
What type of plan is it?	Section 105 plan	Section 125 cafeteria plan
How does it work?	The GCHRA is a tax-free health benefit that allows employers to reimburse their employees for out-of-pocket medical care not covered by their group plan.	An HSA is a tax-advantaged, employee-owned account in which contributions accumulate tax-free to pay for future out-of-pocket healthcare.
Who can participate?	Only employees who enroll in their employer’s group health plan.	Only employees who have an HSA-qualified HDHP.
Who can contribute?	The employer.	The employer and employees.
What are the annual contribution limits?	The GCHRA has no minimum or maximum contribution limits. Employers can also vary allowance amounts by seven employee classes, age, and family size.	In 2025, the maximum contribution limits are $4,300 for individuals and $8,550 for families. They increase to $4,400 and $8,750 in 2026. Additional contributions for individuals and families who are 55 or older are $1,000.
What are the eligible expenses?	All medical expenses listed in IRS Publication 502 and the CARES Act are eligible for reimbursement. However, employers can limit these items in their plan documents. Employers can also require an explanation of benefits (EOB) from the group plan, which limits eligible items to those covered by the group plan. Group plan premiums are ineligible.	All medical expenses listed in IRS Publication 502 are HSA-eligible. However, health insurance premiums, except COBRA premiums, are ineligible.
Is it taxable?	HRA contributions are payroll tax-free for employers. Reimbursements are also free of income taxes for employees.	HSAs have tax-deductible contributions, incur tax-free interest, and allow tax-free withdrawals for qualified medical expenses.
Do funds roll over annually?	No.	Yes.
Is the benefit portable?	No. Any unused allowance for medical expenses stays with the employer when the employee leaves the company.	Yes. The account and all unused HSA funds go with the employee when they leave their organization.

Get our full comparison chart to learn more ways the GCHRA and the HSA compare!

When should you offer a GCHRA vs an HSA?

The chart below covers key guidelines to follow when deciding whether to offer a GCHRA or an HSA.

When to offer a GCHRA	When to offer an HSA
You want to reimburse employees tax-free for qualified out-of-pocket expenses while they’re at your company.	You want to offer a tax-free benefit that allows employees to save for out-of-pocket medical costs both now and in the future.
You want to provide any type of employer-sponsored group health plan, whether an LDHP or an HDHP.	You offer an HSA-qualified HDHP as part of your benefits package.
You want to make the benefit contingent on the employee's continued employment to leverage it as a valuable recruitment and retention tool.	You want to ensure your employees can pay for medical care even if they leave your company.
You want greater flexibility in benefit design by choosing eligible expenses, utilizing employee classes, and having no annual contribution limits.	You don’t mind having annual maximum contribution limits and not being able to customize eligible expenses for your participating employees.
You want unused HRA funds to stay with you when employees leave your company for better budget control.	You want to offer your older employees a benefit that supports them through retirement by giving them contributed tax-free funds for non-medical care items and services.

Conclusion

Ultimately, choosing between a GCHRA and an HSA depends on your budget, group plan type, and your employees' priorities. While both options offer tax advantages and savings on healthcare, understanding their pros and cons can help you make an informed decision and choose the right one that supports the diverse healthcare needs of your workforce.

If you’re looking for a customizable health benefit that supplements your employer-sponsored group health plan, a GCHRA may be the solution. Schedule a call with a PeopleKeep HRA specialist today to learn how we can support you and your employee.

This article was originally published on October 15, 2020. It was last updated August 15, 2025.

1. H.R.1 - One Big Beautiful Bill Act

2. IRS Publication 969

3. IRS Publication 502

4. CARES Act

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