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What is an HRA?

Health Benefits • January 30, 2024 at 6:18 AM • Written by: Holly Bengfort

Offering a health benefit is a big decision for employers. When looking for the perfect health benefit, you have to consider things like cost, flexibility, and the health services the benefit covers. An increasingly popular option for affordable coverage is the health reimbursement arrangement (HRA).

HRAs can be very beneficial for your organization. They are tax-advantaged for employers and give employees more choice over how they'd like to use their health benefit. There are a variety of HRAs, so employers need to understand how each works before making a decision on which one to offer.

In this article, we'll go over what HRAs are, how they work, how they differ from HSAs, what qualifies for reimbursement, various HRA types, and how they compare.

We'll also help you determine if an HRA is the right choice for your business and why you should use an HRA administration platform.

Takeaways from this blog post:

  • A health reimbursement arrangement (HRA) is a cost-effective way employers can provide healthcare to their employees.
  • An HRA is a tax-advantaged health benefit that allows employers to reimburse employees for insurance premiums and other out-of-pocket medical costs.
  • There are various types of HRAs available, including the QSEHRA, ICHRA, GCHRA, EBHRA, dental/vision HRA, and retiree HRA.

New to HRAs? Download our comparison chart for a side-by-side look at the top HRAs

What are HRAs?

An HRA, sometimes mistakenly called a health reimbursement account, is an IRS-approved, tax-free health benefit employers use to reimburse employees for qualifying out-of-pocket medical expenses and, in some cases, individual health insurance premiums. An HRA is an employer-funded benefit, which means there are no employee contributions.

An HRA isn't health insurance. Instead, employers offer employees a monthly allowance of tax-free money dedicated to health spending. Employees buy healthcare services, and sometimes health insurance, that meet their needs, and their employer schedules a reimbursement up to a set allowance amount.

HRAs are an excellent way to provide a well-rounded health benefit and allow employees to pay for specific medical expenses that meet their individual needs. It's an especially budget-friendly option for small businesses that can't afford a group health insurance plan or don’t meet a group plan’s minimum participation requirements.

The types of HRAs available include:

Keep in mind that within the different HRAs, employers still have a lot of flexibility when it comes to designing the benefit, which is one of the most appealing advantages of an HRA.

How does an HRA work?

The way HRAs work is simple. HRAs are unfunded notional accounts with no cash value. This means that employers don’t release HRA funds until they approve and pay out reimbursements. Through HRAs, employers reimburse employees directly after they incur an eligible healthcare expense.

Employer contributions are tax-deductible and payroll tax-free, and the money employees receive is free of income taxes as long as they have minimum essential coverage (MEC).

Although each HRA is different, all HRAs follow the same five-step structure:

  • The business sets the allowance amount. Employers decide the maximum amount of tax-free money they want to offer employees for their eligible healthcare expenses. Depending on the type of HRA, employers can customize allowances by age, family status, or employee class.
  • Employees make purchases. Employees choose the healthcare products and services that fit their needs, potentially including individual insurance plans.
  • Employees submit proof of the expense incurred. Employees submit proof of purchase for eligible medical expenses to get reimbursed. This documentation is usually given in the form of a receipt or invoice.
  • The business reviews employee documentation. The IRS requires the employer or benefits administrator to review employees' documentation for three things: the service or product, the date of the service or sale, and the amount incurred. If it’s an eligible expense that meets these criteria, employers can approve the expense..
  • The business reimburses employees. After approving the expense, the company reimburses employees from their set allowance amount. Once the allowance is reached, the employee can't exceed it.

If you'd like to roll over HRA funds, the option varies by HRA plan. Depending on your type of plan, unused funds can roll over from month to month or year to year.

For example, QSEHRAs may roll over from month to month or year to year. However, any annual rollover must still abide by the QSEHRA's annual limit for allowances.

However, with integrated HRAs, employers can allow balances to accrue monthly and annually. They also have the option not to allow any annual rollover.

Only monthly rollover is permitted if you're offering an HRA with PeopleKeep.

How is an HRA different from a health savings account (HSA)?

HRAs are often confused with health savings accounts (HSAs), but they have their differences. An HSA is a tax-advantaged health account for employees covered by an HSA-qualified high deductible health plan (HDHP). Employees can use it on qualified out-of-pocket costs, such as medical, dental, and vision expenses, prescription drugs, and over-the-counter medicine.

The main difference between the two health benefits is that the employer owns the HRA, and the employee owns the HSA. This means if an employee with an HRA leaves an organization, the unused HRA funds stay with the employer, similar to a flexible spending account (FSA).

Another significant difference is how you fund the two accounts. The money in an HRA is provided solely by the employer. With an HSA, both the employer and the employee can contribute to the account. Unlike certain HRAs, like an integrated HRA, HSAs have annual contribution limits.

Employees can’t use their HSA on most insurance premiums, whereas employers can reimburse individual health insurance premiums with a QSEHRA or ICHRA.

What expenses qualify for reimbursement under an HRA?

HRAs can reimburse any qualified expense under IRS Section 213(d) of the Internal Revenue Code. You can find a list of these expenses in IRS Publication 502. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) further expanded eligible expenses in 2020.

Because an HRA can reimburse both medical expenses and insurance premiums, it's a valuable employee benefit to help lower the overall cost of healthcare.

Different HRAs may restrict certain items from reimbursement. Additionally, the employer offering the HRA can choose to eliminate items from eligibility. Some businesses choose to offer a premium-only HRA, for example, which only reimburses insurance premiums.

What are the different types of HRAs?

HRAs have undergone many changes over the years and continue to grow in popularity. Now, businesses can choose between many different HRAs to offer their employees.

Let's briefly dive into each option below to give you a better idea of how they work.

1. Qualified small employer HRA (QSEHRA)

The QSEHRA is a popular stand-alone health benefit for small businesses. The federal government specifically designed it for employers with fewer than 50 full-time equivalent employees (FTEs) that don't offer a group plan. With the QSEHRA, employers can set a monthly benefit allowance for employees according to their individual or family status.

The IRS sets maximum contribution limits each year. Allowance amounts typically roll over from month to month. You must offer a QSEHRA to all full-time W-2 employees. Additionally, businesses can choose to offer it to part-time employees as long as they receive the same allowance as full-time employees. Reimbursable expenses are also free from employee income tax as long as their policy provides MEC.

2. Individual coverage HRA (ICHRA)

The ICHRA works much like the QSEHRA, but it's available to organizations of all sizes. It comes with no contribution limits and allows businesses to offer different allowance amounts based on family status and 11 employee classes. This allows employers to categorize employees into groups, making it easier to customize benefits.

However, the ICHRA is only available to employees with an individual health insurance policy. Therefore, employees covered by a family member's group policy or an alternative like Medi-Share can't participate in the benefit.

3. Group coverage HRA (GCHRA)

The group coverage HRA (GCHRA), or integrated HRA, is available to businesses of all sizes that offer a group health insurance policy. In this case, only company employees who opt into the health plan can take advantage of the HRA.

With an integrated HRA, employers can offer monthly allowances for employees to pay for any qualified health expense not fully paid for in their group health insurance policy. Common types of expenses that are eligible for reimbursement with an integrated HRA include copays, coinsurance, and expenses employees pay before their deductible is met.

Businesses of all sizes can offer the integrated HRA. There are no allowance limits, and, like the ICHRA, employers can offer different allowance amounts based on employee classes.

4. Excepted benefit HRA (EBHRA)

Much like the GCHRA, an EBHRA is used in conjunction with a group health plan. While employers typically use the integrated HRA to reimburse employees for out-of-pocket medical expenses, employers can use the excepted benefit HRA to reimburse employees for excepted benefits.

Companies of any size may offer an EBHRA, which covers “excepted” benefits only, such as copays, deductibles, and monthly premiums for vision and dental. EBHRAs can also cover COBRA insurance, long-term care, and short-term care. You must offer an EBHRA to every employee on the same terms.

Like the QSHERA, the IRS adjusts EBHRA annual contribution limits yearly for inflation.

5. Retiree HRA

The retiree-only HRA is available solely to a business's retired employees. Businesses of all sizes can offer this HRA, it has no allowance caps or group health insurance requirements, and annual rollover is permitted if allowed by the employer. Retiree participants can have any type of insurance coverage or be uninsured.1

6. Dental/vision HRA

While not a separate type of HRA, employers who also want to provide dental and vision benefits to employees can design their HRA to reimburse dental and vision expenses exclusively. These types of limited HRAs have a very narrow focus and are often paired with HSA to reimburse employees for expenses exempt from the HSA deductible requirement.

Employers can accomplish this by modifying the eligible expenses under an EBHRA or GCHRA.

If you're looking to implement an HRA in conjunction with your group health plan, but want to cover fewer out-of-pocket expenses, then a dental/vision HRA is a better choice than the more expansive integrated HRA.

HRA comparison chart

Understanding how each HRA functions can be confusing. To make their differences clearer, the chart below explains how most HRAs compare to each other.

Type of health plan

Qualified small employer HRA (QSEHRA)

Individual coverage HRA (ICHRA)

Group coverage HRA (GCHRA)

Excepted benefit HRA (EBHRA)

Employer size restrictions

The QSEHRA is only available to employers with fewer than 50 full-time equivalent employees (FTEs).




Group coverage requirements

You can’t offer a QSEHRA if you also offer a group plan.

You can’t offer the same class of employees an ICHRA and a group plan. However, you can offer different classes different benefits.

You must offer a GCHRA alongside a traditional group health insurance plan.

You must offer a group health insurance plan to your employees. However, employees don’t need to participate in the plan to use their EBHRA.

Employee eligibility guidelines

All W-2 full-time employees are automatically eligible for the QSEHRA. Employers can include W-2 part-time employees as long as they offer the same allowance amount as full-time employees.

The ICHRA is only available to employees with an individual health insurance plan.

The GHCRA is only available to employees also covered by the company's group health insurance plan.

The EBHRA is available to all employees you offer a group health plan to, even if they decline to participate in the group plan.

Maximum annual contribution limits

QSHERA annual contribution limits are set by the IRS. For 2024, this is $6,150 for self-only employees and $12,450 for employees with a family.



The IRS sets annual EBHRA contribution limits. For 2024, this is $2,100.

Contribution guidelines

With the QSEHRA, businesses can offer different allowance amounts based on whether the employee is an individual or has a family.

With the ICHRA, businesses can offer different allowance amounts to different classes of employees based on job criteria.They can also differ allowances by family status.

With the GCHRA, businesses can offer different allowance amounts to different classes of employees based on job criteria.

With an EBHRA, businesses can differ allowances by employee class.

Rollover guidelines

Employer funds can roll over from month to month and year to year. However, total QSEHRA amounts can't exceed the annual maximum allowance limit.

Employer funds can roll over month to month and year to year.

Employer funds can roll over month to month and year to year.

Employer funds can roll over month to month and year to year.


HRAs are alternative health benefits that stretch the value of healthcare dollars for employees. Employers can maintain budget control while providing a formal benefit that allows employees to pay for personal medical care. Determining which type of HRA is the best for your business depends on factors like company size and whether or not you have group health insurance coverage. However, for many employers, the flexibility an HRA offers is the primary motivator.

Let us help you find your perfect HRA match! Schedule a call with one of our personalized benefits advisors to learn how PeopleKeep can help you administer an HRA for your business.

This article was originally published on December 31, 2019. It was last updated on January 30, 2024.

  1. https://crsreports.congress.gov/product/pdf/R/R47041

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Holly Bengfort

Holly is a content marketing specialist for PeopleKeep. Before joining the team in 2023, Holly worked in television news as a broadcast journalist. As an anchor and reporter, she communicated complex stories to the vast communities she served on a daily basis. Her background has given her a greater understanding of people and the issues that affect our lives. When Holly isn’t writing, she enjoys reading, exercising, and spending time at the beach.