Health Reimbursement Arrangements (HRA / ICHRA)
A Health Reimbursement Arrangement is an employer-funded account that reimburses employees for qualified medical expenses and, in some arrangements, individual health insurance premiums. Unlike HSAs, HRAs are funded entirely by the employer — employees cannot contribute their own dollars to an HRA. HRAs offer employers a flexible alternative to traditional group health coverage and can be structured to meet a wide range of workforce and budget needs.
Types of Health Reimbursement Arrangements
The ACA and subsequent regulatory changes have created several distinct HRA structures, each with different rules and use cases:
- Traditional HRA — an employer-funded account that reimburses employees for qualified out-of-pocket medical expenses. Traditional HRAs must be integrated with a group health plan and cannot be used to reimburse individual insurance premiums on their own.
- Individual Coverage HRA (ICHRA) — introduced in 2020, the ICHRA allows employers of any size to reimburse employees for individual health insurance premiums purchased on the open market, in addition to other qualified medical expenses. The ICHRA replaces the traditional group health plan with a defined employer contribution, giving employees the flexibility to select their own individual coverage. Employers can vary the ICHRA benefit amount by employee class, such as full-time vs. part-time, salaried vs. hourly, or by geographic location.
- Excepted Benefit HRA (EBHRA) — a limited HRA that can be offered alongside a traditional group health plan to reimburse certain excepted benefits such as dental, vision, and short-term coverage premiums, up to an annual limit set by the IRS.
- Qualified Small Employer HRA (QSEHRA) — available to employers with fewer than 50 full-time equivalent employees who do not sponsor a group health plan. The QSEHRA allows small employers to reimburse employees for individual insurance premiums and qualified medical expenses up to an annual limit.
Key Advantages of HRA Arrangements
HRAs offer several meaningful advantages compared to traditional group health plans:
- Cost predictability — employers set a defined annual contribution amount and are not subject to unpredictable premium increases
- Employee choice — particularly with the ICHRA, employees can select individual coverage that best fits their personal health needs rather than being limited to employer-selected plan options
- Tax efficiency — employer contributions to HRAs are tax-deductible for the employer and tax-free to the employee when used for qualified expenses
- Flexibility — employers can structure reimbursement amounts by employee class and define which expenses are eligible for reimbursement
Industry Considerations
HRA and ICHRA arrangements are particularly valuable for small and mid-size employers who find traditional group health premiums unaffordable or who have geographically dispersed workforces where a single group plan network does not serve all employees well. They are also increasingly used by larger employers as part of a defined contribution benefits strategy. The right structure depends on the size of the organization, the composition of the workforce, budget constraints, and the employer's goals for the benefits program. Etowah Insurance Group can help evaluate whether an HRA or ICHRA arrangement is appropriate for your organization and structure a program that meets your needs.
