Health Reimbursement Arrangements (HRAs) have become an increasingly popular way for employers to provide healthcare benefits while controlling costs.
Unlike traditional group health insurance, an HRA allows an employer to set a defined contribution amount and reimburse employees for eligible healthcare expenses.
However, not every HRA works for every employer.
The right HRA depends on factors such as:
- The size of your business.
- Whether you currently offer group health insurance.
- How your employees obtain health coverage.
- Whether you want to reimburse premiums, medical expenses, or both.
- Whether you need different benefit options for different employee groups.
The most common HRAs for employers include:
- Qualified Small Employer HRA (QSEHRA)
- Individual Coverage HRA (ICHRA)
- Traditional HRA
- Retiree HRA
- Spousal HRA
Quick Comparison of HRA Options
| Type of HRA | Best For | Key Requirement |
| QSEHRA | Small employers without group health insurance | Employer cannot offer a group health plan |
| ICHRA | Employers of any size wanting flexible reimbursement options | Employees must generally have individual coverage or Medicare |
| Traditional HRA | Employers offering group health plans | Usually integrated with a group health plan |
| Retiree HRA | Employers providing benefits to former employees | Available for retirees, not active employees |
| Spousal HRA | Employers wanting to assist employees covered under a spouse’s plan | Designed around specific employee coverage situations |
QSEHRA: Best for Small Employers Without Group Health Insurance
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is designed for small employers that do not offer a group health plan.
A QSEHRA may be a good fit if your business:
- Has fewer than 50 full-time equivalent employees.
- Does not offer group health insurance.
- Wants to provide healthcare benefits with predictable costs.
- Wants employees to choose their own individual health insurance.
A QSEHRA can reimburse employees for:
- Individual health insurance premiums.
- Medicare premiums.
- Qualified medical expenses.
The employer determines the reimbursement allowance, subject to annual IRS limits.
ICHRA: Best for Employers Wanting Maximum Flexibility
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is often the most flexible HRA option.
An ICHRA may be appropriate for employers that:
- Want to reimburse individual health insurance premiums.
- Have employees in multiple states.
- Want different benefits for different permitted employee classes.
- Are looking for an alternative to traditional group health insurance.
Unlike a QSEHRA, an ICHRA:
- Has no federal annual contribution limit.
- Can be offered by employers of any size.
- Allows more flexibility in employee classifications.
However, ICHRA rules are more complex, and employee eligibility must be carefully evaluated.
Traditional HRA: Best for Employers With Group Health Insurance
A traditional HRA is generally used alongside an employer-sponsored group health plan.
It allows employers to reimburse employees for eligible medical expenses such as:
- Deductibles.
- Copayments.
- Coinsurance.
- Other qualified medical expenses.
Traditional HRAs can help employers design richer benefits or provide additional support for employee healthcare costs.
Because traditional HRAs are integrated with group health plans, they are typically used by employers already offering traditional insurance coverage.
Retiree HRA: Best for Former Employees
A Retiree HRA is designed specifically for retirees.
Employers often use Retiree HRAs to provide former employees with funds to help pay for:
- Medicare premiums.
- Supplemental insurance premiums.
- Qualified medical expenses.
A Retiree HRA is generally not designed for active employees who simply become eligible for Medicare.
Spousal HRA: Best for Employees Covered Under a Spouse’s Plan
Some employers want to provide benefits to employees who do not need the employer’s health plan because they are covered under a spouse’s group health plan.
A Spousal HRA can help fill this gap by reimbursing eligible medical expenses for employees covered under a spouse’s plan.
This can be especially useful when combined with an ICHRA.
For example:
- Employees with individual insurance receive benefits through an ICHRA.
- Employees covered under a spouse’s group health plan receive benefits through a Spousal HRA.
This approach allows employers to provide benefits to more employees regardless of how they obtain health coverage.
Learn more: How an ICHRA and Spousal HRA Work Together
How Do I Choose the Right HRA?
Start by answering a few basic questions.
Do You Offer Group Health Insurance?
No:
A QSEHRA or ICHRA may be appropriate.
Yes:
A traditional HRA, ICHRA for permitted classes, or another strategy may be available.
How Many Employees Do You Have?
Small employer with fewer than 50 full-time equivalent employees:
A QSEHRA may be an option if you do not offer group health insurance.
Larger employer:
An ICHRA may provide more flexibility.
How Do Your Employees Get Health Coverage?
Employees who:
- Buy their own insurance → ICHRA may work.
- Are covered by Medicare → ICHRA or another HRA strategy may work depending on circumstances.
- Are covered under a spouse’s employer plan → Spousal HRA may help fill the gap.
- Are retired → Retiree HRA may apply.
Common HRA Mistakes Employers Make
Before implementing an HRA, employers should avoid common mistakes such as:
Assuming Every HRA Works the Same Way
Each HRA has different eligibility rules, contribution rules, and compliance requirements.
Reimbursing Employees Without a Formal Plan
Employers cannot simply give employees money for healthcare expenses and call it an HRA.
A compliant HRA requires proper plan documents and administration.
Choosing an HRA Without Considering Employee Coverage
The best HRA depends on how employees actually receive healthcare coverage.
A solution that works well for one employer may not work for another.
How Empower Helps Employers Choose the Right HRA
Empower helps businesses evaluate, establish, and administer HRA solutions.
We work with employers to implement:
- QSEHRAs
- ICHRAs
- Traditional HRAs
- Retiree HRAs
- Spousal HRAs
Our team helps employers understand their options, select the appropriate arrangement, and manage ongoing administration.
Need Help Choosing an HRA?
Choosing the right HRA depends on your workforce, your goals, and your existing benefits strategy.
Contact Empower to discuss your situation and learn which HRA option may be the best fit for your business.
