Health Reimbursement Arrangements (HRAs) for Employees
A health reimbursement arrangement, also known as a health reimbursement account, is a flexible solution for wellness and cost-effective care.
What Is an HRA and How Does It Work?
An HRA is a reimbursement program fully funded by employers that supplement health insurance or, depending on the type of HRA, it is offered in place of a group health plan. HRAs can be used by employees to cover qualified out-of-pocket medical expenses for themselves, their spouses, and dependents on a tax-free basis.
Benefits of HRAs for Employers
A Cost-Effective Health Benefit
As the employer, you administer the HRA accounts and choose how much you want to contribute for each employee each year.
An Alternative to Traditional Group Health Coverage
HRAs are an alternative health coverage option that helps with contribution cost control and aren’t subject to annual rate hikes.
Tax Advantages
Employer contributions are tax-deductible, and reimbursements are tax-free when an employee files an eligible claim.
No Participation Concerns
There’s no negative impact on your bottom line if employees decide not to use an HRA plan benefit.
Option To Choose Features
Employers have flexibility when choosing the best plan features for their employees and budget.
Augment Your Existing Health Benefits Offerings
Use an HRA to complement your existing employee benefits package, attract top talent, and retain your workforce.
Benefits of HRAs for Employees
Help With Healthcare Costs
An employer-provided HRA can help employees pay for eligible out-of-pocket healthcare costs and other items not typically covered under a group health plan.
Voluntary Participation
Employee participation in an HRA is voluntary, and the employer determines how employees use the HRA funds.
Tax-Free Reimbursements
Employees get tax-free HRA reimbursements for eligible expenses, meaning the employer’s contributions don’t count toward an employee’s taxable income.
Is a Health Reimbursement Arrangement Right for Your Business?
Determining whether an HRA makes sense for your business requires a thorough analysis of different plan features and any potential limitations. You may want to compare HRAs to FSAs and HSAs since each has its own rollover options, employer contributions, funding limits, funding schedules, and reimbursement options.
Other Paychex Benefit Accounts To Consider
HRA Frequently Asked Questions
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Who Owns the HRA?
Who Owns the HRA?
HRAs are administered and entirely funded by the employer.
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Does an HRA Come out of Employee Paychecks?
Does an HRA Come out of Employee Paychecks?
A health reimbursement account is 100% employer-funded and does not come out of an employee’s paycheck. Therefore, because an HRA is not part of an employee’s salary or wages, it is not subject to payroll taxes.
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What Does an HRA Cover?
What Does an HRA Cover?
Only qualified medical expenses are reimbursable by an HRA plan. If used for a qualified medical expense, these reimbursements may be tax-free. In addition to items such as deductibles, copays, coinsurance, dental, vision, prescription, and other out-of-pocket medical expenses, health insurance premiums for current employees, retirees, and COBRA-qualified beneficiaries may be reimbursable under an HRA (depending on the type of plan). View a full list of qualifying HRA coverage expenses here.
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Can Employees Withdraw Money From an HRA Account?
Can Employees Withdraw Money From an HRA Account?
Given that HRA coverage is only funded by the employer, employees cannot withdraw HRA funds for purposes outside of the guardrails provided by the IRS. Unused contributions in HRA accounts are either rolled over to the following year or retained by the employer.
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Do I Have To Have a Certain Number of Employees To Participate in a Health Reimbursement Account?
Do I Have To Have a Certain Number of Employees To Participate in a Health Reimbursement Account?
When thinking about how to set up an HRA, it is important to know that employers of any size can offer this type of benefits account. However, the coverage under an HRA has limits for certain types of plans. For example, a qualified small employer health reimbursement account, QSEHRA, is allowable only for employers with less than 50 employees who don’t already offer a group health plan.
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Are There Contribution Limits for HRAs?
Are There Contribution Limits for HRAs?
While many HRA plan types have no contribution limits, there is a cap for QSEHRAs in 2025: up to $6,350 for individual employees and $12,800 for families.
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Do You Need Health Insurance in Order To Have an HRA?
Do You Need Health Insurance in Order To Have an HRA?
Depending on the type of HRA you may offer employees, you may also have to provide a traditional health plan before your employees can consider how to use HRA money.
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Can I Have an HRA and HSA?
Can I Have an HRA and HSA?
A health reimbursement account (HRA) and a health savings account (HSA) benefit both the employer and employee. Employees can find a greater work/life balance with affordable care, and employers can save on taxes. However, when comparing HRA vs HSA, there are differences.
So, can you have an HRA and HSA? If you, as the employer, offer a qualified HDHP in combination with traditional health coverage, you can provide both to employees. Consult with your benefits specialist to see if the HRA benefits fulfill the needs of your business.