What is a health reimbursement arrangement (HRA)?
An HRA is an employer-funded account that reimburses employees tax-free for medical expenses, and in some versions for their individual health insurance premiums. Only the employer contributes, the money is not taxed as income to the employee, and unused funds stay with the employer rather than the employee.
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The detail
An HRA is funded solely by the employer. Employees cannot contribute to one, which is the clearest single difference between an HRA and both an HSA and a health FSA.
Reimbursements from an HRA are excluded from the employee’s gross income and are not subject to payroll tax for the employer, provided they are for qualified medical expenses.
The individual coverage HRA (ICHRA) can be offered by an employer of any size and has no minimum or maximum contribution limit set by the IRS. The employee must be enrolled in individual health coverage to participate.
Departments of Treasury, Labor and HHS, final rule on Health Reimbursement Arrangements (2019)
The qualified small employer HRA (QSEHRA) is capped. For tax years beginning in 2026 the maximum is $6,450 for self-only and $13,100 for family coverage, set by IRS Revenue Procedure 2025-32.
Unused HRA funds do not belong to the employee. Depending on the plan design they may roll over to the following year, but they are forfeited when employment ends unless the plan specifically provides otherwise.
What this means for you
- If you are an employee: the money is your employer’s until you spend it on a qualifying expense, so there is nothing to lose by using it and nothing to keep by not using it. That is the opposite of an HSA.
- If you are an employer under 50 employees with no group plan: a QSEHRA is the simplest route, and it is capped. If you want to contribute more than the cap, or you already have a group plan for some staff, look at an ICHRA instead.
- If you are an employer of any size: an ICHRA lets you set a fixed budget per employee class and stop absorbing renewal increases, because your cost is what you decided rather than what the carrier decided.
- Either way the employee must actually hold individual health coverage for an ICHRA to reimburse premiums, and you have to collect proof of it each year. That substantiation requirement is the administrative work these plans do carry.
Related questions
- What is the difference between an HRA, an HSA and an FSA?
- Ownership and funding. An HRA is funded only by the employer and the money stays the employer’s until it is spent — it is not portable. An HSA is owned by the employee, can be funded by either party, requires a qualifying high-deductible health plan, and goes with them when they leave. A health FSA is funded mostly by employee salary reduction, is owned by the employer in the same way an HRA is, and is largely use-it-or-lose-it within the plan year. Only the HSA is an asset the employee keeps.
- Can I have an HRA and an HSA at the same time?
- Yes, but only if the HRA is designed not to disqualify you. A general-purpose HRA that reimburses medical expenses from the first dollar makes you ineligible to contribute to an HSA, because it counts as disqualifying coverage. Employers who want to offer both use a limited-purpose HRA — restricted to dental, vision and preventive care — or a post-deductible HRA that only starts paying once the HSA-qualifying deductible has been met.
- Does offering an HRA satisfy the ACA employer mandate?
- An ICHRA can, if the amount offered makes individual coverage affordable under the test in force for that year — for the 2026 plan year, the employee’s cost for the lowest-cost silver plan after the ICHRA allowance must not exceed 9.96% of household income. A QSEHRA does not satisfy the mandate, but that is academic: an employer eligible for a QSEHRA has fewer than 50 full-time-equivalent employees and is therefore not subject to the mandate in the first place.
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