Integrated vs. stand-alone HRA

As healthcare costs continue to rise, some employers are struggling to support their employees' needs while staying within a reasonable budget. One solution is to offer a health reimbursement arrangement (HRA). An HRA is a tax-free, cost-effective way to help employees cover healthcare expenses.

An HRA is an employer-funded arrangement in which you set aside a monthly allowance for employees’ out-of-pocket medical expenses. Employees can submit eligible expenses for reimbursement without it being treated as taxable income. There are two main categories of HRAs: integrated HRAs, which supplement a group health insurance plan, and stand-alone HRAs, which replace a group plan entirely.

In this article, we'll go over how integrated HRAs and stand-alone HRAs compare, and which option is best for your organization.

In this blog post, you'll learn:

• The different types of integrated HRAs.
• The different types of stand-alone HRAs.
• How you can offer an integrated or stand-alone HRA with PeopleKeep by Remodel Health's HRA administration software.

How HRAs work

Before we jump into the different types of HRAs available, let's go over the basics of how an HRA works.

How the process works:

• Employers design their benefits. First, employers choose which type of HRA they want to offer (more on those options later). You decide how much tax-free money you'd like to offer your employees as an allowance for their healthcare spending. You also decide which type of medical costs and healthcare items are eligible for reimbursement. The Internal Revenue Service (IRS) defines a complete list of eligible expenses in Publication 502¹. You can reimburse some expenses and exclude others, depending on the type of HRA.
• Employees enroll in qualifying health coverage. An HRA always requires an employee to enroll in a qualifying form of health coverage. However, the type of coverage depends on the HRA. With an integrated HRA, this is your group health plan. But with a stand-alone HRA, this is an individual health insurance plan.
• Employees pay for healthcare. Your employees purchase medical items and services with their own money.
• Employees submit proof of their incurred expenses. Employees must provide documentation that shows the name of the item or service, its cost, the vendor name, and the date of purchase.
• Employers review and reimburse expenses. Once you or your HRA administrator approves the expense, you reimburse your employee up to their accrued allowance amount. With PeopleKeep, unused funds roll over each month until the end of the year.

What is an integrated HRA?

Integrated HRAs work with a traditional group health plan. They help employees cover out-of-pocket costs like copays, coinsurance, and deductibles.

Group coverage HRA (GCHRA)

The group coverage HRA (GCHRA) is a traditional integrated HRA that allows employers of all sizes to reimburse employees for their medical expenses if they're enrolled in the employer’s group health insurance plan.

GCHRAs are typically used with a high deductible health plan (HDHP) to cover employees' high deductible expenses, but they can work with any traditional group plan.

Using the GCHRA, you set a reimbursement allowance for employees to use each month toward more than 200 types of eligible expenses. There's no annual limit on employer contributions, but you can't reimburse health, dental, or vision plan premiums.

A defining quality of a GCHRA is that employers can choose exactly how they want to customize their benefit by creating employee classes. For example, you could have one group made up of hourly employees and another of salaried employees, and offer each of these groups a different allowance amount. You can also define separate HRA deductibles and cost-sharing requirements for each group.

You can choose to reimburse employees for any out-of-pocket expenses or restrict eligible items to only those that would be covered by your group health plan before employees reach their deductible.

A GCHRA is a good choice for employers who:

• Have an HDHP and want to offset their employees' out-of-pocket healthcare costs
• Want to offer a higher allowance to their employees on a group plan
• Want to offer different benefits to different employees using employee classes

Excepted benefit HRA (EBHRA)

Another type of integrated HRA is the excepted benefit HRA (EBHRA). An EBHRA allows employees to get reimbursed for additional, or excepted, medical care that isn't included in traditional health insurance plans.

This includes dental and vision care, accident and disability insurance, long-term care benefits, and other out-of-pocket healthcare costs not fully covered by their primary group plan.

You can't use EBHRAs to cover individual medical insurance premiums, group plan premiums (other than COBRA), or Medicare premiums. However, you can use an EBHRA to reimburse premiums for individual or group health plans that consist solely of excepted benefits, such as dental or vision insurance.

This benefit also has an annual contribution limit. You must offer an EBHRA alongside a traditional group health plan, but employees don’t have to join the group plan to use the EBHRA.

An EBHRA is a good choice for employers who:

• Want to offer a supplemental health benefit to employees regardless of their enrollment in their traditional group health plan
• Want a fixed annual employer contribution limit
• Don't want to offer different allowances or benefits to separate employee classes

What is a stand-alone HRA?

Unlike integrated HRAs, stand-alone HRAs aren't linked to a traditional group health plan. Instead, employers leverage stand-alone HRAs as an alternative to group health insurance and as the sole health benefit.

With this type of HRA, an employer provides employees a fixed monthly allowance that they can use toward their own individual health insurance premiums and other qualified out-of-pocket expenses.

The two most popular stand-alone HRAs are the qualified small employer HRA (QSEHRA) and the individual coverage HRA (ICHRA). If you're looking for a cost-effective, personalized health benefit, one of these stand-alone HRAs might be just what you need.

Individual coverage HRA (ICHRA)

Introduced in 2020, the ICHRA is available to employers of all sizes. You can offer an ICHRA as a stand-alone benefit, or offer it to employees who aren't offered your traditional group health plan.

With an ICHRA, employers can offer different allowance amounts and vary eligibility using 11 employee classes, such as full-time or part-time.

Employers offer their employees a monthly allowance. Employees purchase individual health insurance coverage and other qualified medical care expenses, and you reimburse them up to their allowance amount. All ICHRA reimbursements are also free of both payroll tax and income tax.

If your organization offers an ICHRA, employees will have the option to opt in or out of your benefit. Employees with premium tax credits must choose between the tax credits and ICHRA reimbursements if the allowance is considered unaffordable, as employees can’t collect any tax credits if they opt into the benefit.

An ICHRA is a good choice for employers who:

• Have more than 50 FTEs and need to satisfy the Affordable Care Act (ACA)'s employer mandate
• Want to offer different benefits to a certain class of employees
• Want to offer more in allowances
• Want to offer a traditional group health plan to some employees and an HRA to others

Qualified small employer HRA (QSEHRA)

A qualified small employer HRA (QSEHRA) is for employers with fewer than 50 full-time equivalent employees (FTEs). Congress created the QSEHRA with the 21st Century Cures Act in 2016 to provide relief to small businesses.

With a QSEHRA, small employers set an allowance for employees to use on individual health insurance premiums and other qualifying expenses. After you verify the expense, you reimburse your employees up to their allowance amount.

The IRS sets annual maximum contribution limits for the QSEHRA, but no minimum contribution limits. Reimbursements are free of payroll tax for the employer and, in most cases, for their employees. Reimbursements are also free from employee income tax. Employees must enroll in a health policy that provides minimum essential coverage (MEC) to participate in the QSEHRA. Any unused amount for the month rolls over to the following month until the end of the year. Any unused funds left at that point will go back to the employer, making it even more cost-effective for your organization.

With a QSEHRA, your employees who receive financial assistance through premium tax credits can't choose to opt out of the benefit and waive future reimbursements to collect their full premium tax credit if the benefit is unaffordable. Instead, they have to lower their credit, dollar-for-dollar, by the monthly HRA funds you offer.

A QSEHRA is a good choice for employers who:

• Have fewer than 50 employees and are looking for an alternative to group health insurance
• Have employees with various insurance coverage situations, such as individual coverage and employees under a parent's or spouse's insurance
• Don't need to offer more than the annual contribution limit allows

How PeopleKeep by Remodel Health can help

While it's possible to administer an HRA on your own, it can be challenging. Besides being time-consuming, errors can also lead to compliance issues that put your company at financial and legal risk.

By using HRA administration software like PeopleKeep by Remodel Health, you can manage your benefit with confidence in minutes each month.

With our expert guidance, we ensure your HRA complies with:

• IRS regulations
• Employee Retirement Income Security Act of 1974 (ERISA) requirements
• Health Insurance Portability and Accountability Act of 1996 (HIPAA) requirements
• ACA requirements

Keeping HIPAA’s privacy rules in mind, our experts carefully review your employees’ submissions for you so you can be sure they qualify for reimbursement.

Our services also include:

• Generating legal plan documents
• Plan design assistance
• Drafting and sending HRA notices
• Storing substantiation materials
• Award-winning customer support
• In-house insurance shopping for ACA-compliant plans

Conclusion

Gone are the days when employer-sponsored health insurance meant choosing a costly group plan. Health reimbursement arrangements (HRAs) give employers flexibility, tax advantages, and a richer benefits experience for their employees.

Whether you want to enhance a group plan or provide a standalone solution, HRAs offer a personalized, cost-effective approach. Ready to take the next step? Schedule a call with one of our HRA specialists today!

This article was originally published on February 2, 2022. It was last updated on March 24, 2026.

References

1. IRS: Publication 502 (2025), Medical and Dental Expenses