Health Reimbursement Arrangements Explained for Business Owners

What Is a Health Reimbursement Arrangement?

A Health Reimbursement Arrangement, or HRA, is a flexible and tax-advantaged way for employers to help cover healthcare costs for their employees. Instead of offering a traditional group insurance plan, you reimburse employees for the medical expenses or insurance premiums they pay on their own.

HRAs give business owners more control over budgets while still providing meaningful health benefits. They’re especially useful for small and growing teams that want flexibility without the complexity of a group plan.

How HRAs Work

Here’s the basic idea:

• You choose how much to reimburse each employee per month.
• Employees pay for qualifying medical expenses or their own insurance premiums.
• They submit proof of the expense to you (or a third-party administrator).
• You reimburse them, tax-free, up to their allowance.

There’s no need to manage a traditional health plan. You just define your budget and let your team find what works best for them.

Types of HRAs Available

There are a few main types of HRAs designed to serve different business needs:

• QSEHRA (Qualified Small Employer HRA): Made for businesses with fewer than 50 full-time employees. You can reimburse both premiums and medical expenses. There are annual contribution limits set by the IRS.
• ICHRA (Individual Coverage HRA): Works for businesses of any size. Employees must have individual health coverage. No contribution limits, and you can customize how much different employee classes receive.
• Integrated HRA: Designed to supplement a group health insurance plan. It covers additional out-of-pocket costs, but can’t be used for premiums.

What HRAs Can Reimburse

HRAs can cover a wide range of eligible expenses, including:

• Monthly health insurance premiums (for individual plans)
• Copays and deductibles
• Prescription medications
• Dental and vision expenses
• Doctor visits and specialist care

You decide what’s reimbursable within IRS guidelines, and you can adjust the policy annually based on your business goals.

Benefits of Using an HRA

Business owners often choose HRAs for several key reasons:

• Cost control: You set the exact amount you're willing to reimburse, which helps manage your budget.
• Flexibility: Employees can choose their own doctors, plans, and coverage based on what works for them.
• Tax advantages: Reimbursements are tax-free for both the business and employees when handled properly.
• Lower administrative burden: There’s no need to deal with group plan paperwork or carrier negotiations.

Common Use Cases

HRAs are popular among:

• Small businesses that don’t qualify for group health insurance or find it too costly
• Companies with remote or out-of-state workers who need flexible benefit options
• Startups and growing teams that want to offer benefits without overcommitting financially

Things to Keep in Mind

Before offering an HRA, consider:

• You’ll need to provide clear documentation and a process for submitting expenses.
• Not all employees may be eligible depending on the type of HRA you choose.
• You should ensure that any employees receiving reimbursements are enrolled in qualified health coverage.

Working with a licensed advisor or HRA administrator can help you stay compliant and avoid missteps.

Final Thoughts

Health Reimbursement Arrangements give you a smart, scalable way to support your team’s health without locking into a one-size-fits-all insurance plan. If you want to offer real value, control your costs, and stay flexible, an HRA might be the perfect fit.

It’s never been easier to set one up, and your employees will appreciate the freedom to choose the care they need.