A Health Reimbursement Account (HRA) works like this: your employer promises a set amount of tax-free money each year to cover your medical costs, you pay a qualifying expense out of pocket, and then you submit a claim and get reimbursed up to that annual cap. Only your employer can contribute. The balance is not real money sitting in an account you own; it’s a promise on the employer’s books, and the cash stays with the company until you file an approved claim.
Where the Money Comes From and Why It’s Tax-Free
Funding flows one direction only: employer to employee. You cannot add your own money to an HRA, and you’ll never see a payroll deduction for it the way you would for an FSA or 401(k).1Centers for Medicare & Medicaid Services. Overview of New Health Reimbursement Arrangements
The tax treatment favors both sides. Your employer deducts HRA contributions as a business expense. On your side, reimbursements for qualified medical costs are excluded from your gross income and from employment taxes.1Centers for Medicare & Medicaid Services. Overview of New Health Reimbursement Arrangements The federal tax code specifically excludes employer contributions to accident and health plans, which covers HRAs, from your gross income,2eCFR. 26 CFR 1.106-1 – Contributions by Employer to Accident and Health Plans and amounts your employer pays to reimburse you for medical care are likewise excluded so long as the expenses meet the code’s definition of medical care.3Office of the Law Revision Counsel. 26 USC 105 – Amounts Received Under Accident and Health Plans
Because the balance is notional rather than pre-funded, your employer keeps the cash until you submit a claim. That’s a real difference from a Health Savings Account, where actual dollars sit in a bank account you own. With an HRA, you’re relying on the employer’s promise to pay. That’s fine while you’re employed. It matters a lot when you leave.
What You Can Spend HRA Money On
Eligible expenses follow the same rules that govern the medical expense tax deduction. If something qualifies as “medical care” under Section 213(d) of the tax code, it’s generally reimbursable from an HRA.4Internal Revenue Service. Frequently Asked Questions About Medical Expenses Related to Nutrition, Wellness and General Health IRS Publication 502 walks through hundreds of specific expenses.5Internal Revenue Service. Publication 502 – Medical and Dental Expenses
Common eligible items include deductibles, copayments, coinsurance, prescription drugs, dental work, vision care, mental health services, and medical devices. Since the CARES Act took effect in 2020, over-the-counter medications no longer need a prescription to qualify, and menstrual care products are also eligible.6Internal Revenue Service. IRS Outlines Changes to Health Care Spending Available Under CARES Act Cosmetic procedures generally don’t qualify unless they address a deformity from disease, injury, or a congenital condition.
Insurance premiums are the big variable. A traditional group HRA usually excludes premiums because your employer is already providing group coverage. ICHRAs and QSEHRAs, by contrast, are built specifically to reimburse individual insurance premiums.
Your HRA can also reimburse expenses for your spouse, your tax dependents, and your children who haven’t turned 27 by the end of the tax year.3Office of the Law Revision Counsel. 26 USC 105 – Amounts Received Under Accident and Health Plans The age-27 rule applies whether or not the child qualifies as your tax dependent.
How a Claim Actually Gets Paid
You pay the expense first. Then you submit a claim to your HRA plan administrator (your employer or a third-party vendor) with documentation: an Explanation of Benefits from your insurer, or an itemized receipt showing the provider name, date of service, and amount charged. The administrator verifies the expense qualifies and releases payment, typically by direct deposit within a few business days.
The Four Types of HRA
What you can do with an HRA depends heavily on which type your employer offers. Four models cover almost all arrangements.
Individual Coverage HRA (ICHRA)
An ICHRA lets employers of any size give employees tax-free funds to buy their own individual health insurance instead of sponsoring a group plan.7Peterson-KFF Health System Tracker. Explaining Individual Coverage Health Reimbursement Arrangements (ICHRAs) – Section: How Are ICHRAs Different From Typical Employer-Sponsored Health Plans? You can use the money for monthly premiums on a marketplace or off-exchange individual plan, plus other qualified medical expenses.
There’s a hard requirement. You must be enrolled in individual health insurance coverage or Medicare to receive any ICHRA reimbursement.8Centers for Medicare & Medicaid Services. Individual Coverage Health Reimbursement Arrangements Drop the individual policy, and the ICHRA money stops. There’s no legal minimum or maximum contribution, and employers can split their workforce into classes (salaried vs. hourly, different geographic areas) and offer different amounts to each class, provided everyone within a class gets the same offer.
Qualified Small Employer HRA (QSEHRA)
A QSEHRA is only for businesses with fewer than 50 full-time employees that don’t offer a group health plan.9HealthCare.gov. Health Reimbursement Arrangements (HRAs) for Small Employers Unlike the ICHRA, it has IRS-set annual caps that adjust for inflation. For 2026, the maximum reimbursement is $6,450 for self-only coverage and $13,100 for family coverage.10Internal Revenue Service. Revenue Procedure 2025-32 The employer must offer it on the same terms to all eligible employees, though the allowance can differ between self-only and family coverage.
Integrated (Group) HRA
The traditional group HRA links directly to a group health insurance plan your employer sponsors. It’s common with high-deductible plans, where the HRA closes the gap between what you pay out of pocket and where full coverage kicks in. An employer might pair a plan carrying a $3,000 deductible with an HRA that covers $1,500 of it. Because group coverage is already in place, integrated HRA funds are typically restricted to expenses other than premiums: deductibles, copays, coinsurance.
Excepted Benefit HRA (EBHRA)
An EBHRA is a smaller supplemental account offered alongside a group health plan, for expenses like dental care, vision care, copayments, and short-term insurance. The 2026 maximum contribution is $2,200. The employer must offer a traditional group plan alongside the EBHRA, but you don’t actually have to enroll in that group plan to use the EBHRA funds.11CMS. What Is an Excepted Benefit Health Reimbursement Arrangement An EBHRA cannot reimburse individual insurance premiums or group plan premiums.
HRAs and Marketplace Premium Tax Credits
If you buy coverage on the ACA marketplace, the interaction between your HRA and premium tax credits can cost you money. The rules differ by HRA type.
When your employer offers you an ICHRA, you generally cannot claim premium tax credits for marketplace coverage. The exception is if the ICHRA is considered “unaffordable”; then you can opt out of the ICHRA entirely, enroll in marketplace coverage, and claim the credit.12Internal Revenue Service. Questions and Answers on the Premium Tax Credit You cannot take both. The affordability threshold for 2026 is 9.96% of household income.13Internal Revenue Service. Revenue Procedure 2025-25 If the lowest-cost silver plan available to you, minus your ICHRA allowance, would cost more than 9.96% of your income, the ICHRA is unaffordable and you can decline it in favor of subsidized marketplace coverage. If not, you’re stuck with the ICHRA.
A QSEHRA doesn’t block the premium tax credit outright, but it reduces it. Your credit is lowered by 1/12 of your full annual QSEHRA allowance each month, whether you actually use the HRA funds that month or not.14Office of the Law Revision Counsel. 26 USC 36B – Refundable Credit for Coverage Under a Qualified Health Plan Your employer must tell you the QSEHRA allowance amount so you can factor the reduction into your marketplace application.
HRAs and Health Savings Account Eligibility
This is where people accidentally disqualify themselves from an HSA. If your employer offers you a general-purpose HRA, meaning one that reimburses any qualified medical expense from the first dollar, you cannot contribute to an HSA. It doesn’t matter whether you actually file any HRA claims. Mere eligibility for a general-purpose HRA counts as disqualifying coverage.
Two HRA designs can coexist with an HSA:
- A limited-purpose HRA that covers only dental and vision expenses. Because it doesn’t reimburse general medical costs, it doesn’t affect HSA eligibility.
- A post-deductible HRA that doesn’t reimburse anything until you’ve met the minimum annual deductible for an HSA-qualified high-deductible health plan. For 2026, that minimum is $1,700 for self-only coverage and $3,400 for family coverage.
One additional trap with family HDHP coverage paired with a post-deductible HRA: the HRA cannot reimburse any individual family member’s expenses until the full family deductible has been satisfied. An HRA that starts paying after one person hits the self-only minimum, but before the family minimum is reached, will disqualify everyone on the plan from making HSA contributions.
Rollovers, Portability, and What Happens When You Leave
Whether unused HRA funds carry over to the next plan year is up to your employer. Some plans use “use it or lose it” and let unused funds expire at year-end. Others allow full or partial rollovers. Your employer can change the rollover policy from year to year, so check the plan document annually rather than assuming last year’s rules still apply.
HRAs are not portable. Unlike an HSA, where you own the account and take it with you, HRA funds belong to your employer. When you leave your job, whether you quit, retire, or are terminated, the balance reverts to the company. Most plans give you a limited window after separation to submit claims for expenses you incurred while still employed. After that window closes, the remaining balance is gone. Employers cannot cash out your HRA balance either; paying you the remainder in cash would trigger taxes on every HRA distribution the plan has ever made, not just the cash-out amount.
COBRA Continuation
If your employer has 20 or more employees, the HRA is treated as a group health plan for COBRA purposes, and your employer must offer continuation coverage after a qualifying event like job loss or a reduction in hours. Electing COBRA for the HRA lets you keep submitting claims against your remaining balance, but you can be charged up to 102% of the plan’s cost for that coverage.15U.S. Department of Labor. Continuation of Health Coverage (COBRA) Whether COBRA is worth electing depends on how much balance is left. A small remaining balance often doesn’t justify the premiums. When an HRA is paired with a group insurance plan, COBRA must be offered for both components; the employer can’t continue the insurance and quietly drop the HRA.