Understanding Health Reimbursement Arrangements (HRA) for Employers

Introduction

Health Reimbursement Arrangements (HRAs) are health benefits that employer-funded health benefits that help employees pay for medical expenses.

This article tells you what HRAs are, how they work, the numerous varieties that are available, and how employers can set them up without breaking the law.

What is a Health Reimbursement Arrangement (HRA)?

A Health Reimbursement Arrangement (HRA) is a health benefit funded entirely by the employer. It reimburses employees for qualified medical expenses.

Unlike HSAs or FSAs:

• Employees do not contribute their own money
• Employers control contribution amounts
• Reimbursements are usually tax-free

Employees can use HRA funds for:

• Deductibles
• Copayments
• Prescriptions
• Other eligible medical expenses

Types of Health Reimbursement Arrangements

Health Reimbursement Arrangements (HRAs) are available in several types, including

• Traditional HRAs
• Qualified Small Employer HRAs (QSEHRA), and
• Individual Coverage HRAs (ICHRA).

Traditional HRA

A Traditional HRA reimburses employees for eligible medical expenses using employer-provided funds.

• Employer sets the budget
• Unused funds usually do not carry over
• Often paired with group health insurance

Qualified Small Employer HRA (QSEHRA)

QSEHRAs are designed for small businesses with fewer than 50 full-time employees.

• Reimburses medical expenses and insurance premiums
• Annual contribution limits are set by the IRS
• Employees must have minimum essential coverage

Individual Coverage HRA (ICHRA)

ICHRAs allow employers of any size to reimburse employees for individual health insurance.

• No IRS-set contribution limits
• Employers choose allowance amounts
• Employees must enroll in individual coverage

This option offers maximum flexibility for employers.

How HRAs Benefit Employers

Better cost control

Employers decide how much to contribute, making healthcare costs predictable and easier to manage.

Tax savings

Contributions to an HRA are tax-deductible, which helps a business pay less in taxes overall.

Flexible plan design

Employers can adjust HRA programs to meet the needs of their workers, like the amount of contributions and eligible expenses

Stronger employee retention

Offering HRAs improves employee satisfaction and helps attract and retain top talent.

How HRAs Benefit Employees

More control over healthcare spending

Employees can use HRA funds for a wide range of eligible medical expenses.

Reimbursements that are not taxed

Most HRA reimbursements aren't taxed, which helps employees save more on health care costs.

Options for portability

Employees may be able to keep unused HRA payments if they leave the company, although this depends on the plan.

Improved access to healthcare

HRAs reduce out-of-pocket costs, making essential medical care more affordable.

How to Set Up a Health Reimbursement Arrangement

Establishing an HRA involves defining

• Employee eligibility
• Setting contribution limits
• Creating a reimbursement process, and
• Effectively communicating the plan to employees.

Employee Eligibility

Based on the following, employers decide who is qualified:

• Status of employment
• Job classification
• Length of service

Contribution Limits

ICHRA:

• There are no minimum or maximum contribution limits
• Employers decide how much to give as an allowance.
• Note: Contributions must meet ACA affordability rules — the lowest-cost silver plan must cost less than 9.96% of the employee’s monthly household income in 2026.

QSEHRA (IRS limits) – 2026:

• Individual coverage: $6,450 per year
• Family coverage: $13,100 per year

These limits are updated each year by the IRS.

Reimbursement Process

Employers need to make the procedure clear for:

• Filing claims for expenses
• Checking to see if expenses are eligible
• Issuing reimbursements

Employee Communication

Clear communication is essential. Employers should explain:

• Eligible expenses
• Contribution limits
• Claim submission steps
• Plan updates and deadlines

HRA Compliance and Regulations

Employers must follow federal regulations to maintain compliance.

• IRS Rules:HRAs must follow IRS rules regarding how the plan is set up, how much money can be contributed, and what expenses are qualified.
• ERISA: Employee benefit plans must comply with ERISA standards where applicable.
• ACA: Make sure that HRAs meet the ACA's standards for coverage and affordability.
• HIPAA: Follow HIPAA privacy and security requirements to keep employees' health information safe.

If you don't follow the rules, you could get fined, punished, or lose tax benefits.

Conclusion

Health Reimbursement Arrangements (HRAs) give employers a flexible way to manage healthcare costs while supporting employees with tax-free medical reimbursements. With proper setup and compliance, HRAs can improve employee satisfaction and provide predictable, cost-controlled benefits for businesses of any size.

Make HRA Reporting on Pay Stubs Easier

Accurate pay stubs are essential for tracking HRA reimbursements and deductions.

Why Choose SecurePayStubs?

• Easy-to-use paystub generator
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• Customizable professional templates
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SecurePayStubs helps employers show HRA information easily on pay stubs while staying compliant.

This article has been updated from its original publication date of February 04, 2026.