Types Of HRAs

Health reimbursement arrangements (HRAs) are a flexible, cost-controlled, and modern health benefit option for employers of all sizes. With an HRA, you determine a monthly, tax-free allowance amount that your employees can use to buy qualified medical costs, and in some cases, individual health coverage. While you may know the basics of how HRAs work, you still must know how the main types differ before choosing the right one for you and your employees.

This article will take you on a deep dive into the different types of HRAs available, allowing you to identify the right benefit and strategy that will help you meet your organization’s goals.

In this blog post, you’ll learn:

• How each main type of HRA works and what makes them different from one another.
• Which employers are best suited for each HRA based on size, budget, and employee needs.
• How to match the right HRA to your benefits strategy so you can offer the right health benefit to your team.

The qualified small employer HRA (QSEHRA)

A qualified small employer HRA (QSEHRA) is a simple, budget-friendly health benefit for companies with fewer than 50 full-time equivalent employees (FTEs) that don’t offer traditional group health insurance or an ancillary group plan. With a QSEHRA, small businesses can reimburse eligible employees for their individual health plan premiums and other medical costs.

Staff members must have a health plan that provides minimum essential coverage (MEC) to use the benefit.

Here are some key features of the QSEHRA:

• The IRS sets annual maximum contribution limits, but there’s no minimum funding requirement. Allowances roll over monthly, and you can adjust contribution amounts by age and family status.
• Employers must offer the QSEHRA to all full-time W-2 employees on the same terms to comply with federal law. Part-time staff can participate in the benefit as long as they have proper health coverage and they receive the same contribution amount as full-time workers.
• You can choose to reimburse premiums only or premiums plus eligible out-of-pocket medical expenses.
• Employees eligible to participate in the QSEHRA may still be able to receive premium tax credits. However, they must adjust their subsidy amount based on whether their benefit is affordable.
  • Here’s how it works: If the QSEHRA is affordable, employees can’t use tax credits for that month. If it's not affordable, they can still collect their credits. But they must reduce their subsidy amount by their QSEHRA allowance.

Who is best suited for the QSEHRA?

A QSEHRA is well-suited for small businesses that want to offer a personalized yet affordable health benefit while avoiding the administrative burden that their small HR team may not be able to handle. Employees will get to choose the coverage that best suits their specific health needs.

A QSEHRA may be a good option for small businesses that:

• Have fewer than 50 FTEs and aren’t offering traditional group health insurance.
• Are looking to offer a health benefit option but stay in control of their benefits budget.
• Want employees to choose their own individual coverage, providers, and out-of-pocket healthcare services and items.
• Have varying employee ages and family sizes, and need flexibility in setting allowances.
• Need a simple, easy-to-manage benefit that doesn’t require a large administrative team.
• Have a mix of employees with individual coverage, those on a parents’ plan, or those on a spouse’s coverage. This is because employees with MEC through group coverage can still participate in the QSEHRA if your plan design also reimburses them for out-of-pocket medical costs.

The individual coverage HRA (ICHRA)

The individual coverage HRA (ICHRA) allows employers of any size to reimburse employees for individual health plan premiums and qualified medical expenses, as long as they have a qualified individual health plan that provides MEC. Examples of qualifying coverage include individual or student health plans that meet ACA standards, Medicare Parts A and B together, Medicare Advantage (Part C), and catastrophic plans for eligible employees.

Here are some key features of the ICHRA:

• The ICHRA can work with companies of any size and budget, and has no contribution limits.
• Benefit design can vary based on age, family status, and employee classes—such as full-time, part-time, or location-based groups. These customization options allow you to set different eligibility rules and allowance amounts.
• The ICHRA can coordinate with traditional group health insurance. However, employers must offer employees within the same class either a group plan or an ICHRA. They also can’t give employees the choice between which benefit they prefer.
• Applicable large employers (ALEs) can use an ICHRA to meet ACA’s employer mandate requirements, as long as they offer it to at least 95% of full-time employees (and their dependents) and their ICHRA allowance meets affordability standards.
• Unlike the QSEHRA, employees must choose between their premium tax credits and ICHRA — they can’t have both.
  • Here’s how it works: Employees can either use the ICHRA and waive premium tax credits or opt out and use tax credits if the ICHRA is unaffordable. If the ICHRA is affordable, they aren’t allowed to claim tax credits even if they decline the HRA.

Who is best suited for the ICHRA?

An ICHRA is ideal for mid-sized to larger organizations looking for greater flexibility — especially those with diverse workforces and multiple office locations. With an ICHRA, employees choose their own individual health insurance coverage while employers tailor allowances and eligibility rules by 11 job-based employee classes.

An ICHRA may be a good option for employers that:

• Want to replace their group health insurance plan with a customizable, scalable alternative that can help them save on rising premium costs.
• Have multi-state employees or remote workers who require local insurance options and provider networks.
• Have the budget to offer greater allowance amounts than a QSEHRA allows, but want to keep their spending predictable.
• Need to set different contribution limits across various employee groups to better attract and retain workers.
• Are an ALE seeking a compliant way to meet ACA employer mandate requirements using an HRA.

The group coverage HRA (GCHRA)

A group coverage HRA (GCHRA), often called an integrated HRA or traditional HRA, only works with employer-sponsored group health plans. Businesses that offer group coverage can use the GCHRA to supplement their benefits and help employees cover out-of-pocket medical costs. Only employees enrolled in the employer’s group plan are eligible to participate in the benefit, as it doesn’t coordinate with individual health coverage.

Here are some key features of the GCHRA:

• Employers can use the GCHRA to reimburse employees’ healthcare expenses, such as deductibles, coinsurance, and copayments, that their group plan’s insurer won’t fully cover. However, by law, premiums are ineligible for reimbursement.
• Integrated HRAs can work with any group plan. However, you and your employees can save on monthly premium costs by pairing the GCHRA with a high deductible health plan (HDHP). The GCHRA can help cover employees’ higher deductible amounts and greater out-of-pocket expenses that they may face by enrolling in an HDHP.
• There are no contribution limits with a GCHRA, and employers may vary allowances by employee classes, age, and family status for added customization.

Who is best suited for the GCHRA?

A GCHRA works well for employers who want to maintain their existing group health insurance plan but offer their employees greater financial support in combating rising deductibles, copays, and coinsurance costs. With the GCHRA, business owners can make group coverage more affordable for both their company and their team.

A GCHRA may be a good option for employers that:

• Are looking for a straightforward add-on benefit that easily integrates with their existing group coverage.
• Want to lower their group plan premium costs by moving to an HDHP and offset the higher deductible with an HRA.
• Prefer to keep their employees on a single group health plan rather than shifting to an entirely new health benefit model.
• Want to ease employees’ financial responsibility by reimbursing eligible out-of-pocket medical expenses that their group plan doesn’t fully cover.
• Need flexibility to vary allowance amounts and eligibility criteria for different classes of employees.

The excepted benefit HRA (EBHRA)

An excepted benefit HRA (EBHRA) supplements a traditional group health plan by reimbursing employees for certain excepted benefits (which are benefits the health plan doesn’t include) and other eligible medical expenses. Unlike a GCHRA, employees don’t need to enroll in the group plan. You simply need to offer it to them, and they can choose whether to participate in the benefit.

Here are some key features of the EBHRA:

• This HRA is available to organizations of any size that offer a traditional group health plan.
• Like the QSEHRA, the EBHRA has a maximum contribution limit set by the IRS each year. In 2026, employers can contribute an annual allowance amount of $2,200. However, employers may allow unused funds to roll over from one year to the next without counting toward the following year’s limit.
• Excepted benefits that are eligible for reimbursement include vision and dental coverage, accident or cancer insurance, limited health benefits (such as short-term insurance), and cost-sharing amounts for supplemental health benefits.
  • EBHRAs can’t reimburse premiums for individual health insurance, traditional group health plans, or Medicare. However, they can reimburse COBRA premiums.

Who is best suited for the EBHRA?

An EBHRA supports organizations that want to boost their existing group health insurance plan with extra benefits for specific medical services. With this HRA, employers can offer their staff a more complete health benefits package without significantly increasing overall costs.

An EBHRA may be a good option for employers that:

• Already offer a group health insurance plan and want to boost it with dental, vision, accident, disability, or other excepted benefits.
• Prefer a benefit that employees can use even if they decline their employer-sponsored group plan.
• Want to help employees pay for certain out-of-pocket healthcare expenses while staying within annual contribution caps and allowing for annual rollovers.
• Seek to improve employee satisfaction by allowing financial access to supplemental benefits and reducing gaps in group health coverage.

While PeopleKeep doesn’t administer the EBHRA, we can help employers of all sizes interested in administering a QSEHRA, ICHRA, or GCHRA.

Conclusion

Choosing the right HRA can help your company offer a customized health benefit that doesn’t break the bank. Whether you have a small team, are a growing ALE, or want to supplement your existing group health insurance plan, there’s an HRA that can help you meet your goals. If you’re ready to take the next step, schedule a call with PeopleKeep by Remodel Health, and we’ll help you determine the best HRA for your organization!