What is a Health Reimbursement Arrangement?

A Health Reimbursement Arrangement (HRA) is an employer-funded account that reimburses employees tax-free for qualified medical expenses and, in some cases, individual health insurance premiums. Unlike an HSA, HRAs are funded entirely by the employer — employees cannot contribute their own money. HRA funds used for qualifying expenses are not taxable income to the employee.

What are the different types of HRAs?

The main HRA types are: the traditional Group Coverage HRA (for employees covered by a group plan), the Qualified Small Employer HRA (QSEHRA — for employers with fewer than 50 employees, no group plan), and the Individual Coverage HRA (ICHRA — available to employers of any size, reimburses individual market premiums and medical expenses). There is also the Excepted Benefit HRA (EBHRA) for limited dental/vision expenses.

How much can an employer contribute to a QSEHRA in 2026?

For 2026, the QSEHRA annual contribution limit is $6,350 for self-only coverage and $12,800 for family coverage (limits are indexed for inflation; 2025 limits were $6,350 and $12,800 — confirm 2026 limits with IRS). The employer sets the amount within this cap. QSEHRA reimbursements are tax-free to employees as long as the employee has qualifying health coverage.

Can I use an HRA and an HSA at the same time?

It depends on the HRA type. A traditional group HRA generally makes you ineligible for HSA contributions. An ICHRA can be HSA-compatible if it only reimburses premiums and HDHP-specific costs. A QSEHRA makes you ineligible for HSA contributions unless your employer structures it specifically as HSA-compatible. An Excepted Benefit HRA (EBHRA) is HSA-compatible.

Health Reimbursement Arrangement (HRA) 2026 — ICHRA, QSEHRA & HRA Rules

A Health Reimbursement Arrangement (HRA) is an employer-funded account that reimburses employees tax-free for qualified medical expenses and, in the case of the ICHRA and QSEHRA, individual health insurance premiums. Unlike a Health Savings Account (HSA), which is employee-owned, HRAs are funded entirely by the employer — employees make no contributions. Amounts reimbursed through an HRA for qualified expenses are tax-free to the employee and tax-deductible to the employer.

Quick answer: HRAs are a powerful alternative to traditional employer-sponsored health insurance, particularly for small businesses. The two most flexible types — the ICHRA (any employer size) and the QSEHRA (small employers under 50 FTEs) — allow employers to fund employees’ individual health insurance purchases on the ACA marketplace tax-free.

Types of HRAs at a Glance

HRA Type	Employer Size	Group Plan Required?	Reimburses Premiums?	HSA Compatible?
Group Coverage HRA (traditional)	Any	Yes	No	No
QSEHRA	Under 50 FTEs	No	Yes	No (generally)
ICHRA	Any size	No	Yes	Possible
Excepted Benefit HRA (EBHRA)	Any (group plan required)	Yes	No (limited)	Yes

QSEHRA: Qualified Small Employer HRA

The QSEHRA was created in 2016 to give small employers a way to help employees pay for individual health coverage without offering a traditional group plan.

Who can offer it: Employers with fewer than 50 full-time equivalent employees (not an Applicable Large Employer under the ACA) who do not offer any group health plan.

2026 Contribution Limits:

Self-only coverage: up to $6,350/year ($529.17/month)
Family coverage: up to $12,800/year ($1,066.67/month)

(Limits indexed for inflation; confirmed when IRS releases annual notice.)

Key rules:

All eligible employees must receive the same benefit (you can vary by family status, not individual characteristics)
Employees must have Minimum Essential Coverage (MEC) — typically individual ACA marketplace plan — to receive reimbursements tax-free
If an employee has marketplace insurance with a premium tax credit, the QSEHRA reduces their credit dollar-for-dollar

Tax treatment:

Employer contributions are deductible as a business expense
Employee reimbursements are not included in the employee’s taxable income (if MEC requirement is met)

ICHRA: Individual Coverage HRA

The ICHRA was created in 2020 and expanded the HRA concept to employers of any size, with no annual contribution cap.

Who can offer it: Any employer — including ALE employers with 50+ FTEs.

Key advantages:

No contribution cap — employer can reimburse any amount
Employer can vary allowances by employee class** (full-time, part-time, seasonal, hourly vs. salaried, geographic location, and others)
Can be structured to be HSA-compatible if it only reimburses insurance premiums and medical expenses associated with an HDHP

Key rules:

Employees must be enrolled in individual health insurance (ACA-compliant plan or Medicare)
Employees cannot have ICHRA benefits and also receive an ACA premium tax credit in the same month
Employer must give 90 days’ notice before the ICHRA plan year starts

Traditional Group Coverage HRA

The traditional group HRA can only be offered alongside a group health plan. It reimburses employees for out-of-pocket medical expenses (co-pays, deductibles, co-insurance) but not for insurance premiums.

There is no statutory annual cap on employer contributions. Unused funds do not expire annually — employers can allow rollover.

Important: Offering a traditional HRA makes employees ineligible for HSA contributions unless the HRA is structured to only cover dental, vision, or post-deductible expenses.

Excepted Benefit HRA (EBHRA)

The EBHRA is a limited-purpose HRA that can be offered alongside a group plan for employees who declined group coverage. It reimburses limited benefits: dental, vision, and other excepted benefits.

2026 annual limit: approximately $2,150 (indexed)
HSA compatible: Yes — the EBHRA does not disqualify HSA eligibility

HRA vs HSA vs FSA: Key Differences

Feature	HRA	HSA	FSA
Who funds it?	Employer only	Employee (and employer)	Employee (and employer)
Employee contribution allowed?	No	Yes ($4,300 self-only in 2026)	Yes ($3,300 in 2026)
Rolls over unused funds?	Employer decides	Yes (always)	Often limited
Owned by employee?	No — stays with employer	Yes	No
HDHP required?	No	Yes	No
Tax-free to employee?	Yes	Yes	Yes
Works with HSA?	Depends on type	N/A	Limited FSA types only

Setting Up an ICHRA or QSEHRA

Steps for employers:

Choose the HRA type based on company size and goals
Design the benefit — set contribution amounts, eligible employee classes (ICHRA), and effective date
Draft the plan document — required for compliance; typically prepared by a benefits attorney or HRA administration platform
Notify employees — at least 90 days before the plan year (ICHRA); before the plan year begins (QSEHRA)
Reimburse employees — employees submit qualified expense receipts; employer reimburses from business funds

HRA administration platforms like PeopleKeep, Take Command Health, and Thatch simplify compliance, plan documents, and reimbursement processing for small employers.

When an HRA Is the Right Choice

An HRA (particularly ICHRA or QSEHRA) may be the right health benefit strategy when:

You are a small employer who cannot afford group plan premiums
You have a geographically distributed workforce where a single group plan does not make sense
You want employees to choose their own coverage on the marketplace
You are trying to give different amounts to different employee classes (ICHRA)
You want a tax-efficient alternative to raising salaries to cover health costs

Caution: Employees who are eligible for ACA premium tax credits may have those credits reduced dollar-for-dollar by QSEHRA reimbursements. Ensure employees understand the interaction before assuming the QSEHRA provides full value.

HSA Contribution Limits 2026 — Health Savings Account rules
HDHP vs PPO Guide — choosing the right health plan type
FSA vs HSA Comparison — Flexible Spending Account vs Health Savings Account
Medicare IRMAA Guide 2026 — Medicare surcharges for high earners
Health Insurance Hub — complete health coverage guide

HRAs offer a flexible, tax-efficient way for employers to support employees’ health coverage without the rigidity and expense of traditional group plans. For small business owners especially, the QSEHRA and ICHRA represent meaningful alternatives to watch in 2026.

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

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