What expenses does an HRA cover that health insurance typically doesn't?

By Elizabeth Walker on April 2, 2026 at 10:26 AM

Offering affordable health benefits to your employees can be challenging. Traditional group health insurance plans often have high costs and strict eligibility requirements, leaving many small businesses seeking more flexible, budget-friendly alternatives. Additionally, employees today want a personalized health benefit that can support a wide range of expenses, and not just major medical events.

Stand-alone health reimbursement arrangements (HRAs) allow employees to choose their own health plan and receive reimbursement for a broader range of healthcare expenses that their insurance company may not cover.

The article below reviews which medical expenses HRAs and traditional health plans cover, so you can better explain to your employees how HRAs are beneficial.

In this blog post, you’ll learn:

How an HRA works and how it differs from traditional health insurance.

What expenses health insurance typically covers compared to what an HRA can reimburse.

Which medical expenses are eligible and ineligible for HRA reimbursement.

How does a stand-alone HRA work?

An HRA is an employer-funded benefit that allows you to reimburse employees tax-free for qualified medical expenses and, in the case of stand-alone HRAs, individual health insurance premiums. Instead of offering a traditional group health plan, you set a monthly allowance, and employees choose the individual coverage and out-of-pocket medical services that work best for them. Once they submit proof of eligible expenses, such as an invoice or receipt, you reimburse them up to their allowance.

Employers can choose one of the following stand-alone HRAs to meet their needs:

The individual coverage HRA (ICHRA): The ICHRA is for organizations of all sizes looking for greater flexibility. There’s no maximum contribution limit, and you can vary allowance amounts and eligibility rules by employee class, such as part-time vs. full-time, seasonal, or geographical location. You can also vary allowances by age and family size. Employees must have a qualified individual health plan to use the benefit. Applicable large employers (ALEs) can leverage an ICHRA to satisfy the ACA’s employer mandate.
The qualified small employer HRA (QSEHRA): The QSEHRA is for small businesses with fewer than 50 full-time equivalent employees (FTEs) that don’t offer a group health plan. While it has no minimum contribution limits, the IRS sets annual maximum limits. Unlike with ICHRA, employers can’t vary allowances based on employee class. However, you can adjust contributions by age and family status. Employees must have a medical plan with minimum essential coverage (MEC) to participate in the QSEHRA.

Whether you offer a QSEHRA or an ICHRA, HRA contributions are tax-deductible and payroll tax-free for employers. Eligible reimbursements are also exempt from income tax for participating employees.

What expenses does health insurance typically cover?

Traditional health insurance plans cover a wide range of essential healthcare services. However, coverage levels (for individual and small group plans) and out-of-pocket costs vary by plan. For example, a bronze health plan has an average actuarial value of 60%, meaning individuals typically pay 40% of their expected healthcare costs. In contrast, individuals with a gold plan only pay 20% of their expected medical expenses.

The exact expenses that a health insurance plan covers vary by plan and carrier. You should check your plan’s summary of benefits and coverage (SBC) and drug formulary for a complete list.

Here are some examples of medical expenses that a health insurance plan typically covers:

Expense category	Examples
Preventive care	Annual checkups and wellness visits Vaccinations and immunizations Screenings (blood pressure, cholesterol, cancer screenings)
Doctor visits and outpatient care	Primary care visits Specialist appointments Urgent care visits
Hospital and emergency services	Emergency room visits Hospital stays and surgeries Ambulance services
Prescription drugs	Generic and brand-name drugs Specialty medications (depending on the plan)
Mental health and substance use services	Therapy and counseling sessions Psychiatric care Substance use treatment programs
Maternity and newborn care	Prenatal visits Labor and delivery Postnatal care
Rehabilitative and habilitative services	Physical therapy Occupational therapy Speech therapy

It’s important to keep in mind that traditional plans often come with deductibles, copayments, coinsurance, and out-of-pocket maximums, which can affect an individual’s overall costs.

What expenses does an HRA cover that health insurance typically doesn't?

One of the biggest advantages of an HRA is its ability to reimburse a broader range of out-of-pocket and health-related expenses that traditional health insurance plans alone either don’t cover or only partially cover.

Here are some medical expenses that employees can request reimbursement for with an HRA:

Expense category	Examples
Out-of-pocket healthcare costs	Deductibles Copayments and coinsurance Costs that apply before meeting a deductible
Dental and vision care expenses	Routine dental checkups and cleanings Fillings, crowns, and orthodontics Eye exams, glasses, and contact lenses
Over-the-counter medical items	Pain relievers and cold medications Allergy medications First aid supplies, such as bandages, antiseptics, etc.
Medical devices or equipment	Crutches, braces, and supports Blood pressure monitors Glucose testing supplies
Alternative and holistic care	Chiropractic care Acupuncture Certain therapeutic treatments (if eligible)
Menstrual care and personal health items	Tampons, pads, and menstrual cups Pregnancy tests and fertility-related items
Health insurance premiums (only reimbursable with a QSEHRA or an ICHRA)	Individual health plan premiums COBRA premiums Vision or dental plan premiums Medicaid/CHIP insurance premiums

IRS Publication¹ and the CARES Act² outline the complete list of HRA-eligible services and items. Additionally, some medical expenses are only eligible for reimbursement if you have a prescription or a doctor’s note. This is because reimbursements can only be for medically necessary expenses.

Check out our interactive eligible expense tool to get a full understanding of what an HRA can cover.

What kinds of expenses aren’t eligible for HRA reimbursement?

Although HRAs cover many types of healthcare expenses, not everything qualifies. The IRS defines which expenses are eligible, and employers must follow these guidelines to stay compliant and receive the tax benefits an HRA offers.

Here are common examples of non-eligible HRA expenses:

General health and wellness items

Gym memberships
Fitness trackers or exercise equipment
Vitamins and supplements for general health

Cosmetic procedures or surgery

Teeth whitening
Cosmetic surgery (unless medically necessary with a doctor’s note)

Non-medical personal expenses

Toiletries (shampoo, soap, toothpaste)
Skincare products for cosmetic use
Household items

Expenses already covered elsewhere

Costs covered by health insurance
Expenses already paid for with another health benefit, like a flexible spending account or a health savings account (HSA)

Premiums for non-qualifying health coverage

Conclusion

When comparing HRAs to traditional health insurance, the key difference is flexibility. While health plans focus on covering major medical services, HRAs empower employers to support a wider range of everyday healthcare expenses for both your full-time and part-time workers. This can make all the difference if you’re looking to update your compensation package to better attract and retain talented employees.

If you’re considering implementing a QSEHRA or an ICHRA at your organization, PeopleKeep by Remodel Health can help! Contact us today to learn how you can design, set up, and manage a compliant benefit.