When it comes to offering health benefits to your employees, the most common choice is a traditional group health plan. However, health reimbursement arrangements (HRAs) are growing more popular among employers, and they come with a lot of lesser-known perks.
In this article, we'll review the pros and cons of both group health insurance plans and HRAs, as well as introduce you to a special HRA designed to work alongside a group health plan.
In this blog post, you'll learn:
- How many people have employer-sponsored group health insurance.
- What medical expenses are reimbursable through an HRA.
- Which stand-alone HRAs are the most popular.
All about group health insurance
A group health insurance plan is what you usually think of when an employer offers an insurance policy to their employees. There are two primary types of group plans: fully-insured plans and self-insured plans.
With a fully-insured group plan, an employer will choose one insurance plan for all of their employees to participate in. The employer and enrolled employees split the cost of monthly insurance premiums to maintain their healthcare coverage.
Typically, there's a deductible that participants need to meet before their coinsurance is applied, as well as an out-of-pocket maximum that participants must meet before the insurance will cover anything.
There are also self-funded group plans. With this type of plan, the employer takes on the risk of insuring its employees. Instead of buying coverage and paying premiums, the employer pays out employee medical claims directly according to the plan documents.
Advantages of group health insurance
One of the biggest reasons employers choose traditional group health insurance plans is that their employees are familiar with them. According to KFF1, 60% of non-elderly Americans have employer-sponsored group health insurance, so it's generally what employees expect.
Additionally, it's easy to find an insurance broker willing to help employers purchase a group plan. Brokers are generally knowledgeable about insurance and can walk you through your enrollment documents.
Finally, employees like that their employer pays for a portion of the insurance or pays claims directly to reduce their overall insurance cost.
Disadvantages of group health insurance
While employees covered through a group health plan are generally grateful for the coverage, they don't get much choice in the matter. Group insurance is chosen by the employer, so employees don't have any say in what network they'll have available, the deductible they'll need to meet, or the premium they'll have to pay.
On the employer's side of things, fully-insured group health plans are expensive, especially since they cover a larger share of the insurance premiums to save their employees money. Not to mention, employers are subject to annual rate hikes every year the plan is due for renewal. It’s not unusual for an employer to face double-digit rate increases.
What's more, group plans often have minimum contribution and participation rates. So if you don't have enough employees in your organization, or not enough who want to participate, you won't be able to offer a group health plan at all.
With self-funded plans, employers are on the hook for employee medical claims. If your employees have a high utilization year, you could spend more than you budgeted for.
All about health reimbursement arrangements (HRAs)
Thankfully, there’s another option for employers. An HRA is an IRS-approved, employer-funded health benefit. With an HRA, employers provide tax-free reimbursements to employees for their out-of-pocket medical expenses.
There are more than 200 HRA-eligible medical expenses, including:
- Monthly insurance premiums for health, vision, and dental coverage
- Dental care
- Vision care
- Doctor visits
- Emergency care
- Prescription drugs
- Over-the-counter medication
Employers simply offer a monthly allowance to their employees, then their employees go out and purchase the individual health insurance and medical expenses that make sense for them and their families.
After the employer verifies their purchase, they reimburse their employees up to their allowance amount. Any unused allowance at the end of the year goes back to the employer.
The most popular stand-alone HRAs are:
Advantages of HRAs
As an employer, the biggest advantage of an HRA is the cost. With an HRA, you get to decide how much of an allowance to offer your employees, giving you a fixed cost you can count on and budget for every year — with no annual rate hikes! Plus, they come with tax benefits for employers and employees.
What's more, HRAs are simple and inclusive, with a unique type available for organizations of every size and budget. When you use a software administration software like PeopleKeep by Remodel Health, you'll only need about five minutes a month to administer the benefit.
For your employees, they get a personalized, flexible benefit that meets their unique healthcare needs. Unlike a group health plan, an HRA allows each employee to use the benefit differently and personally choose an individual health insurance plan that works for them.
Disadvantages of HRAs
While HRAs are growing in popularity, your employees are likely unfamiliar with them. You'll need to make sure they're properly educated on how the benefit works, what medical expenses qualify, and where to shop for an individual health plan.
As far as employers are concerned, organization owners may not be able to participate in their HRA, depending on the type of organization they run. For example, C-corporation owners are able to fully participate in their HRA, but S-corporation owners are not.
Using group health insurance and an HRA together
If you have the budget to offer a traditional group plan, but also like the personalized benefit of an HRA, the group coverage HRA (GCHRA) is a special type of HRA that's specifically designed to work alongside a group health insurance plan.
The GCHRA, often called an integrated HRA, is a reimbursement arrangement between an employer and their employees to help pay for the out-of-pocket medical expenses that aren't covered in the group health insurance plan.
Unlike a traditional integrated HRA, employers aren't restricted to compatible plans through any individual provider. Plus, they can keep their HRA even if they change insurance providers.
In addition, offering a group health insurance plan alongside a GCHRA can help bridge the gap between offering a group plan and minimizing insurance premium costs.
Conclusion
Finding the right balance between cost and coverage is crucial to employee benefits. You want to offer valuable health benefits without overextending your budget or sacrificing coverage quality. Whether you lean towards a traditional group health plan, consider the adaptability of a health reimbursement arrangement (HRA), or contemplate a mix of both, each option has its advantages. Understanding these can help you make an informed decision tailored to your company's needs.
This article was originally published on May 6, 2021. It was last updated on August 21, 2025.
- KFF Employer-Sponsored Health Insurance 101
