Health Reimbursement Arrangement (HRA)

What Is a Health Reimbursement Arrangement (HRA)?

A Health Reimbursement Arrangement is an employer-funded benefit that reimburses employees tax-free for qualified medical expenses, and in some designs, health insurance premiums. Unlike an HSA or FSA, an HRA isn't really an account at all; it's an agreement where the employer sets aside a notional amount and reimburses employees as they submit qualifying expenses.

Because the employer owns and funds the arrangement, HRA reimbursements work through a different mechanism than standard pre-tax payroll deductions, where the employee elects and contributes their own money.

How Does an HRA Work?

The employer sets an annual allowance and decides which expenses qualify. Employees typically pay for care out of pocket first, then submit documentation for reimbursement, though some plans issue a debit card instead.

Employers retain full control over plan design, deciding whether unused amounts roll over and how the arrangement fits alongside other pretax insurance offerings like an FSA or HSA.

What Are the Types of HRAs?

Several HRA variants exist, each suited to different employer sizes and goals.

According to SHRM, the ICHRA rule places no cap on employer contributions, unlike the QSEHRA, which remains subject to an annual IRS maximum that can run short for older employees or larger families.

How Is an HRA Different From an HSA or FSA?

Ownership is the core distinction. Forbes notes that an employee doesn't own an HRA the way they own an HSA. The employer funds and controls the arrangement, and unused amounts generally revert to the employer, not the employee, when someone leaves the company.

This lack of portability is one of the most important things to communicate clearly. Indeed describes an HRA as employer-funded with employer-set rules on rollover, in contrast to an HSA's employee ownership and an FSA's employee-directed contributions.

Why Do Employers Offer an HRA?

For employers priced out of traditional group coverage, an HRA offers a way to still support employee healthcare costs without unpredictable premium increases. Structuring this alongside PEO services or an ASO benefits arrangement can offload much of the administrative burden of tracking claims and reimbursements.

Communicating HRA value clearly matters just as much as plan design. AI benefits enrollment software can help employees understand exactly what an HRA does and doesn't cover before they commit to a plan year.

Whichever structure an organization chooses, the underlying pressure driving HRA adoption keeps building. The World Economic Forum has noted that health spending now consumes roughly 10% of global GDP, a trend that keeps pushing more employers, especially small ones, toward reimbursement-based models over traditional group plans.

Tracking HRA allowances accurately alongside other pretax benefits belongs in the same system used for employee benefits management, so payroll, claims, and compliance reporting all stay aligned.

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Frequently Asked Questions

Q: Who owns the money in an HRA?

A: The employer does. Unlike an HSA, an HRA is not portable, and unused funds generally revert to the employer if the employee leaves.

Q: Can employees contribute to their own HRA?

A: No. HRAs are funded entirely by the employer. Employees cannot make their own contributions the way they can with an HSA or FSA.

Q: What is the difference between a QSEHRA and an ICHRA?

A: A QSEHRA is limited to small employers with fewer than 50 employees and has an IRS contribution cap. An ICHRA is available to employers of any size and has no contribution limit.

Q: Does an HRA count as health insurance?

A: No. An HRA is a reimbursement arrangement, not an insurance policy, though some HRA types can be used to reimburse insurance premiums.

Q: Can an employer offer both an HRA and a group health plan?

A: It depends on the HRA type. A standard or excepted-benefit HRA can supplement a group plan, while a QSEHRA and most ICHRA arrangements require the employer not to offer group coverage to that class of employees.