A Health Reimbursement Arrangement (HRA) plan is an employer-funded benefit that pays you back, tax-free, for qualifying medical expenses up to a yearly allowance your employer sets. Only your employer puts money into it. You cannot add your own funds through payroll deductions, which is the main way an HRA differs from a Health Savings Account or Flexible Spending Arrangement.
How the Money Works
Your employer decides the maximum annual reimbursement amount when it designs the plan, and it owns the funds until a valid claim is paid out. The contributions are excluded from your gross income and are not subject to payroll taxes, so the reimbursements you receive are generally tax-free.1HealthCare.gov. Individual Coverage Health Reimbursement Arrangements (HRAs) The IRS requires that an HRA be “paid for solely by the employer and not provided pursuant to salary reduction” under a cafeteria plan.2Internal Revenue Service. Health Reimbursement Arrangements Notice 2002-45
Unused money at year’s end does not automatically belong to you. Your employer decides at the outset whether leftover balances roll over into the next year or are forfeited. If you leave the company, the remaining balance typically stays with the employer, though COBRA may let you continue the coverage for a limited time.
What You Can Spend It On
The IRS uses the definition of “medical care” in Section 213(d) of the tax code to determine what qualifies. That definition broadly covers the diagnosis, treatment, and prevention of disease, along with items that affect the structure or function of the body.3Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses In practice, common qualifying expenses include:
- Doctor and hospital costs, including copays, deductibles, specialist fees, and surgery charges
- Prescription drugs and insulin
- Medical equipment such as crutches, wheelchairs, and blood sugar test kits
- Vision and dental care, including exams, glasses, contacts, cleanings, fillings, and orthodontics
- Mental health services, including therapy, counseling, and psychiatric care
Your employer can narrow this list. For example, some HRAs reimburse only dental and vision costs. What an employer cannot do is expand the list beyond the federal definition, so gym memberships or cosmetic procedures that fall outside Section 213(d) are off-limits even if the plan document tries to allow them.
The Main Types of HRA
The type of HRA your employer offers determines your annual cap, what the money can cover, and whether you need separate health insurance to participate.
Individual Coverage HRA (ICHRA)
An ICHRA reimburses you for individual health insurance premiums and other qualified medical expenses instead of your employer offering a traditional group health plan. To use one, you must be enrolled in individual health coverage bought through the marketplace or directly from an insurer, or enrolled in Medicare.4HealthCare.gov. Individual Coverage HRAs There is no IRS-imposed annual maximum on ICHRA contributions, and employers of any size can offer one.
Qualified Small Employer HRA (QSEHRA)
The 21st Century Cures Act created this option for businesses with fewer than 50 full-time employees that do not offer a traditional group health plan.5Internal Revenue Service. Affordable Care Act Tax Provisions for Employers Unlike an ICHRA, it has annual reimbursement caps. For 2026, the limits are $6,450 for self-only coverage and $13,100 for family coverage.6Internal Revenue Service. 2026 Publication 15-B
Excepted Benefit HRA (EBHRA)
An EBHRA runs alongside a traditional group health plan and covers narrower expenses such as dental, vision, and other qualifying medical costs. For 2026, the most an employer can make newly available under an EBHRA is $2,200.7Internal Revenue Service. Revenue Procedure 2025-19 – 2026 Inflation Adjusted Items for HSAs and Excepted Benefit HRAs You do not have to enroll in the employer’s group plan to use the EBHRA, but the employer must offer one.
Group Coverage HRA
A group coverage HRA works in tandem with employer-sponsored health insurance. It helps you pay costs the primary plan does not fully cover, such as high deductibles, coinsurance, or copays, and it follows the same eligibility rules as that group plan.
Getting Reimbursed
Every claim needs documentation showing you incurred a qualifying medical expense. An Explanation of Benefits from your insurer or an itemized receipt from the provider is what plan administrators generally accept. The document should show the date of service, what was provided, and the amount you owed. A credit card statement alone usually is not enough, because it does not identify the specific medical service.
Some employers issue HRA debit cards you can swipe at the pharmacy or doctor’s office. Keep your receipts anyway. The plan administrator can request documentation after the fact, and a charge that cannot be substantiated may be treated as taxable income.
Plan documents set a claim deadline. Many plans allow a run-out period after the plan year ends, often 60 to 90 days, during which you can still submit claims for expenses incurred during the prior year. If your plan allows rollovers, the carried-over balance stays available for future qualifying expenses.8Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
How an ICHRA Affects Marketplace Subsidies
If your employer offers you an ICHRA, that offer can change your eligibility for the premium tax credit on marketplace coverage. The IRS considers an ICHRA offer affordable if your share of the monthly premium for the lowest-cost Silver plan in your area, after subtracting the employer’s ICHRA contribution, comes to less than 9.02% of your monthly household income.1HealthCare.gov. Individual Coverage Health Reimbursement Arrangements (HRAs)
When the offer is affordable, you lose premium tax credit eligibility even if you decline the ICHRA and buy marketplace coverage on your own. This applies to you and any household members included in the offer. When the offer is not affordable, you can choose the ICHRA or the premium tax credit, but not both. To claim the credit, you must formally decline the ICHRA.
An ICHRA offer is not something you can ignore. Even if you never use the account, an affordable offer blocks your access to subsidized marketplace coverage, so run the affordability numbers before open enrollment closes.
Can You Have an HRA and an HSA?
If you have a high-deductible health plan and want to contribute to a Health Savings Account, the design of your HRA matters. A general-purpose HRA that reimburses all qualifying medical expenses from the first dollar makes you ineligible to contribute to an HSA.8Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans Certain HRA designs preserve HSA eligibility:
- A limited-purpose HRA that reimburses only dental and vision expenses
- A post-deductible HRA that pays nothing until you meet the HDHP minimum annual deductible, which for 2026 is $1,700 for self-only coverage and $3,400 for family coverage9Internal Revenue Service. IRS Notice 2026-05 – 2026 HSA and HDHP Limits
- A suspended HRA, where you elect to pause reimbursements for a coverage period and only preventive care is paid during the suspension
Ask your HR contact which category the HRA falls into before enrolling. Signing up for a general-purpose HRA will disqualify you from making or receiving HSA contributions for the entire coverage period.
If You Leave the Job: COBRA
If you lose HRA access because of a qualifying event such as job loss, a reduction in hours, or divorce, COBRA may let you continue receiving HRA reimbursements for a limited time. COBRA generally applies to group health plans sponsored by employers with 20 or more employees, and HRAs are treated the same as any other group health plan for this purpose.10U.S. Department of Labor. Continuation of Health Coverage (COBRA)
Under COBRA, you pay a monthly premium rather than receiving reimbursements at no cost. Your former employer sets the premium using either past utilization among plan participants or an actuarial estimate of expected costs, and it can add up to 2% for administration. Coverage generally lasts up to 18 months after a qualifying event, though certain events extend it to 36 months.