An HRA, or health reimbursement arrangement, is an employer-funded plan that reimburses employees tax-free for qualified medical expenses and, in some types, health insurance premiums. Only the employer contributes, and the employer sets how much is available and what it covers.
Key takeaways
- HRAs are funded entirely by the employer; employees can't contribute through payroll.
- Reimbursements for qualified expenses are tax-free to the employee and deductible for the employer.
- The main types are the integrated group HRA, QSEHRA, ICHRA, and the excepted benefit HRA.
- Employers only pay for claims actually reimbursed, which makes costs more predictable.
How HRA works
An HRA is a promise, not a bank account. The employer decides an annual allowance, for example $2,000 per employee, and reimburses eligible expenses as employees submit them. Unused amounts can roll over or expire, depending on the plan design. Because the money isn't deposited in advance, the employer only spends what employees actually claim (IRS Publication 969, HSAs and other tax-favored health plans).
The type of HRA determines what it can do. An integrated HRA pairs with a group health plan to help cover deductibles and coinsurance. A QSEHRA lets small employers with fewer than 50 full-time equivalents and no group plan reimburse individual premiums and expenses up to an annual limit. An ICHRA lets employers of any size reimburse individual market premiums by employee class. An excepted benefit HRA sits alongside a group plan and covers smaller amounts for things like dental, vision, or short-term plans.
HRA example
A 60-person design firm moves to a higher-deductible group plan to cut premiums and adds an integrated HRA that reimburses the first $1,500 of each employee's deductible. If half the staff use the full amount and the rest use an average of $400, the firm spends $57,000 instead of the $90,000 maximum, while premiums drop by more than that.
KFF found that 33% of covered workers in high-deductible plans with an HRA receive an employer contribution at least equal to their single-coverage deductible (KFF 2025 Employer Health Benefits Survey), a sign that many employers use HRAs to soften high deductibles.
Why HRA matters for employers
HRAs give employers control. Instead of absorbing premium increases each year, an employer can fix its contribution and let employees choose how to use it. Average family premiums rose 6% to $26,993 in 2025 (KFF 2025 Employer Health Benefits Survey), and KFF's discussion notes that early reports point to higher cost trends for 2026, so predictable funding is attractive.
HRAs come with rules, including ERISA documents, ACA compliance for some types, and notices. They're also hard to run on spreadsheets. Benefits administration platforms and specialist HRA vendors handle claims substantiation and reporting.
Common HRA mistakes to avoid
Letting employees contribute
HRAs are employer-funded only. Employee contributions belong in an FSA or HSA.
Choosing a type that doesn't fit the plan
A QSEHRA can't be offered alongside a group health plan, and an ICHRA requires individual coverage.
Skipping substantiation
Every reimbursement needs proof the expense was eligible.
Ignoring HSA interaction
A standard HRA makes employees ineligible for HSA contributions unless it's limited-purpose or post-deductible.
HRA: questions people also ask
What is the difference between an HRA and an HSA?
Who can offer an HRA?
Are HRA reimbursements taxable?
Do unused HRA funds roll over?
What is a QSEHRA?
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HRTally glossary entries are written by people who have run US payroll, benefits, and HR operations, then checked line by line against primary sources such as the IRS, Department of Labor, EEOC, and Bureau of Labor Statistics. Dollar limits and rates are for 2026 unless stated. We review every entry at least twice a year and whenever a rule changes. This page explains general rules and isn't legal or tax advice; state law can differ. Read our editorial standards.
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<blockquote>An HRA, or health reimbursement arrangement, is an employer-funded plan that reimburses employees tax-free for qualified medical expenses and, in some types, health insurance premiums. Only the employer contributes, and the employer sets how much is available and what it covers.</blockquote><p>Source: <a href="https://www.hrtally.com/hr-glossary/hra/">HRTally HR Glossary, HRA</a></p>
Written by the HRTally Research Team
Our guides are written and reviewed by people with hands-on US HR, payroll, and HR technology experience. Legal and tax facts are checked against primary sources, such as the Department of Labor, IRS, EEOC, and USCIS, and linked at the end of each guide. Vendors never review or pay for our editorial content.