What are reimbursable out-of-pocket medical costs?

From unexpected medical bills to pricey prescriptions, out-of-pocket expenses can add up fast. According to KFF¹, 75% of uninsured adults in the United States skipped or postponed needed medical care due to cost in 2025.

Employers who understand which medical expenses are reimbursable can help ease this financial burden while offering a tax-advantaged benefit or providing contributions toward some of their employees’ out-of-pocket costs. Given that health coverage consistently ranks as the most-requested employee benefit in our Employee Benefits Survey, this is an important perk to consider in your benefits package.

In this article, we'll go over which out-of-pocket costs qualify for reimbursement and how you can offer medical expense reimbursements as an employee benefit.

In this blog post, you'll learn:

• What out-of-pocket costs insurance won't cover.
• The out-of-pocket limit for an individual and family health plan in 2026.
• What types of expenses are reimbursable with an HRA.

What are out-of-pocket costs?

Even people with health insurance still worry about out-of-pocket medical costs. KFF found that half of U.S. adults say it is difficult to afford healthcare, and about 30% report that they or someone in their household had trouble paying medical bills in the past year.

Out-of-pocket costs refer to medical expenses that health insurance doesn’t cover, whether the plan is employer-sponsored, purchased through the Marketplace, or self-purchased off-exchange.

These types of expenses include:

• Costs before you reach your deductible
• Coinsurance costs
• Copay fees for covered services
• Costs for healthcare services that the insurer doesn't cover, including out-of-network care

When health insurance companies refer to out-of-pocket maximums, they typically only refer to in-network care. However, individuals may incur additional out-of-pocket expenses for items and services not fully covered by their plan, including out-of-network costs.

The maximum out-of-pocket limit for an individual is $10,600 for an individual policy and $21,200 for a family policy in 2026².

Reimbursable health expenses

More than 200 types of out-of-pocket expenses in IRS Publication 502 are eligible for reimbursement through a health reimbursement arrangement (HRA), including monthly premiums for individual health insurance coverage³. Employees can also pay for these expenses, other than premiums, using health savings accounts (HSAs) or health flexible spending accounts (FSAs).

Other IRS Section 213(d) HRA-eligible expenses include:

• Monthly premiums for vision and dental coverage
• Vision and dental services
• Preventive services
• Emergency services
• Prescription drugs
• Over-the-counter medications

These expenses can be especially significant for individuals managing chronic conditions, where ongoing care, prescription drugs, and specialist visits often lead to higher healthcare spending.

Reimbursement with an HRA

HRAs are employer-funded health benefits that allow employers to reimburse employees for qualifying out-of-pocket expenses. All reimbursements made through an HRA are completely tax-free for the employer and tax-free for employees, too. Employees can only participate in an HRA if they have the required type of medical coverage.

Many employers prefer stand-alone HRAs as a cost-effective alternative to traditional group health insurance. But you can also pair an integrated HRA with a group health plan to fill gaps in coverage.

PeopleKeep by Remodel Health offers three popular HRAs:

• Individual coverage HRA (ICHRA): The ICHRA works for employers of all sizes. You can offer it as a stand-alone benefit or as an alternative health benefit to employee classes that don't qualify for your current group health plan. Employees need their own qualifying individual health insurance to participate in this benefit.
• Qualified small employer HRA (QSEHRA): The QSEHRA is a stand-alone health benefit for small businesses with fewer than 50 full-time equivalent employees (FTEs). Unlike an ICHRA, employees don't need an individual plan to participate. They can participate if they have qualifying minimum essential coverage (MEC), including through a spouse's or parent's group insurance plan.
• Group coverage HRA (GCHRA): The GCHRA, or integrated HRA, supplements a group health insurance policy. It covers out-of-pocket costs not fully paid for by the group health insurance plan, like deductibles.

Providing funds for out-of-pocket expenses with a stipend

If you’re looking for a simpler option, a health stipend is another way to support employees’ medical costs without the regulatory requirements of an HRA.

A health stipend is a fixed amount of money employers provide to help cover healthcare-related expenses. However, unlike HRAs, stipends count as taxable income, meaning employees must report them as wages.

Additionally, stipends don’t satisfy the Affordable Care Act’s (ACA) employer mandate for organizations with 50 or more FTEs. Employers also can't require employees to show how they use stipend funds.

Conclusion

The most tax-efficient way to reduce the financial burden of healthcare expenses, including individual insurance premiums, is through a health reimbursement arrangement (HRA). With an HRA, employers can offer flexible, personalized health benefits tailored to their team’s needs. Employers looking for a simple way to offer an HRA or health stipend can use PeopleKeep by Remodel Health to administer and manage their benefits program.

This blog article was originally published on February 14, 2022. It was last updated on June 22, 2026.

References

1. https://www.kff.org/health-costs/americans-challenges-with-health-care-costs/
2. https://www.healthcare.gov/glossary/out-of-pocket-maximum-limit/
3. IRS Publication 502