A Health Reimbursement Arrangement (HRA) is an employer-funded account that reimburses you for medical expenses tax-free. Unlike a traditional group health plan where your employer picks one insurance policy for everyone, an HRA gives your employer a way to set aside a specific dollar amount for each employee to spend on qualifying healthcare costs. Your employer funds the entire account. You cannot contribute your own money to it.
How an HRA Works
The mechanics are straightforward: your employer decides how much money to allocate per employee, you pay for eligible medical expenses out of pocket, then you submit a claim and get reimbursed from your HRA balance. The IRS defines an HRA with three requirements: it must be funded solely by the employer (not through salary deductions), it must reimburse expenses that qualify as medical care under tax law, and it must allow unused funds to roll over into the next coverage period.
That last point is a key distinction. Unlike a flexible spending account (FSA), where you often lose unspent money at year’s end, HRA balances can carry forward and grow over time. Your employer sets a maximum reimbursement amount each year, and whatever you don’t use gets added to next year’s limit.
The tax treatment benefits both sides. Your employer’s contributions are excluded from your gross income, so you don’t pay income tax or payroll tax on the money. When you receive reimbursements for qualifying expenses, those are also tax-free.
Types of HRAs
Not all HRAs work the same way. The type your employer offers determines what expenses are covered, whether you need your own insurance, and how much your employer can contribute.
Individual Coverage HRA (ICHRA)
An ICHRA is designed for employers who don’t want to manage a traditional group health plan. Instead of offering one insurance policy to all employees, your employer gives you money through the HRA and you go buy your own individual health insurance, either through the Marketplace or directly from an insurer. To participate, you must be enrolled in individual health coverage or Medicare. Your employer will ask you to confirm that enrollment each time you request reimbursement. There is no annual cap on how much an employer can contribute to an ICHRA.
Qualified Small Employer HRA (QSEHRA)
The QSEHRA is specifically for small businesses that don’t offer group health insurance. It works similarly to an ICHRA but comes with annual contribution limits set by the IRS. For 2026, the maximum is $6,450 per year for employee-only coverage and $13,100 for employees with families. These limits adjust annually for inflation.
Excepted Benefit HRA
This type works alongside a traditional group health plan rather than replacing it. If your employer already offers group insurance, they can add an excepted benefit HRA to help cover costs that the main plan doesn’t fully address: vision, dental, copayments, short-term insurance, or other out-of-pocket expenses. The annual maximum for this type is $2,200 for plan years beginning in 2026.
What Expenses Qualify
HRAs can reimburse a wide range of medical expenses as defined by the IRS. The list goes well beyond doctor visits and prescriptions. Qualifying expenses include dental treatment, eyeglasses and contact lenses, hearing aids, chiropractor visits, mental health care, physical therapy, fertility treatments, and prescription medications. Less obvious eligible costs include acupuncture, breast pumps, blood sugar test kits, service animals, laser eye surgery, smoking cessation programs, and even home modifications like entrance ramps when medically necessary.
Weight-loss programs qualify if a physician has diagnosed a specific disease that requires the treatment. Medical conference admission fees count if the conference relates to a chronic illness you or a dependent has. Transportation costs for getting to and from medical care are also reimbursable.
The specific expenses your HRA covers depend on how your employer designed the plan. Some employers reimburse broadly across all IRS-qualifying categories, while others limit reimbursements to certain types of care.
How HRAs Compare to HSAs and FSAs
The biggest difference between these three tax-advantaged health accounts comes down to who owns the money and who puts it in.
- Funding: Only your employer can put money into an HRA. With an HSA, you, your employer, or anyone else can contribute. An FSA is mainly funded by you through payroll deductions, though your employer can also contribute.
- Ownership: Your employer owns the HRA. You cannot directly withdraw funds from it; you submit claims for reimbursement. An HSA, by contrast, belongs to you completely. You control the funds and keep them even if you change jobs. Your employer owns your FSA.
- Portability: HRA funds generally stay with your employer if you leave your job. HSA funds are fully portable and follow you wherever you go. FSA funds are typically forfeited when you leave, with limited exceptions.
- Rollover: Unused HRA balances carry forward year to year by default. HSA balances roll over indefinitely. FSAs have limited or no rollover, depending on the plan.
An HSA also requires enrollment in a high-deductible health plan, which is not a requirement for most HRA types. And unlike an HSA, where you can invest your balance and let it grow, an HRA is strictly a reimbursement mechanism controlled by your employer.
What Happens When You Leave Your Job
In most cases, unused HRA funds stay with your employer when you leave. Because the employer owns the account, the money doesn’t transfer to your next job or convert into a personal account. This is one of the most significant limitations compared to an HSA.
There are exceptions. Some employers, particularly government agencies and large organizations, design their HRA plans to remain accessible after separation or retirement. In those cases, former employees and their spouses and dependents can continue using the balance for qualifying health expenses with no time limit. The specifics depend entirely on how your employer structured the plan, so it’s worth checking your plan documents before assuming the money disappears when you leave.
Why Employers Offer HRAs
HRAs appeal to employers because they shift from a “defined benefit” model to a “defined contribution” model. With traditional group insurance, the employer picks a plan and absorbs whatever the premiums cost each year, with little control over rising prices. With an HRA, the employer sets a fixed dollar amount per employee and knows exactly what healthcare will cost the company that year.
This approach gives employers budget predictability while still providing meaningful health benefits. Small businesses that can’t afford or don’t want to manage group insurance plans can use a QSEHRA to offer employees healthcare support without the administrative complexity of shopping for and maintaining a group policy. Larger employers can use an ICHRA with no cap on contributions, giving them flexibility to offer competitive benefits while letting employees choose coverage that fits their individual needs.