A health reimbursement arrangement (HRA) is an employer-funded personal benefit that reimburses employees for individual health insurance premiums and qualified medical expenses.
Health Reimbursement Arrangements follow a simple process. The employer sets the budget, employees make healthcare decisions, and reimbursements happen tax-free. Here’s how it works step by step.
The employer decides how much to contribute each month toward each employee’s healthcare costs. (Amounts are based on local individual market plans.)
Employees select an individual health insurance plan that fits their needs — through the ACA marketplace, directly from a carrier, or through our platform.
After purchasing coverage or incurring a qualified medical expense, employees submit documentation (receipts, invoices, or an explanation of benefits) for reimbursement.
The employer reviews and approves the expense, then reimburses the employee (tax-free for both parties). With Benafica, this process is managed through our platform, so employers don’t need to handle claims manually.
Benafica administers two types of stand-alone HRAs: the Individual Coverage HRA (ICHRA) and the Qualified Small Employer HRA (QSEHRA). Both allow employers to reimburse employees tax-free for health insurance premiums and qualified medical expenses, but they differ in employer eligibility, contribution limits, and flexibility.
Best for: Employers wanting maximum flexibility, businesses with diverse or multi-location workforces, and ALEs looking for an alternative to group health insurance.
Best for: Small businesses and nonprofits offering health benefits for the first time, or employers who want a straightforward, budget-friendly benefit.
Employer Size
Any size
Less than 50 FTE’s
Group Plan Allowed?
Yes, for different employee classes
Cannot offer alongside a group plan
Contribution Limits
No max. contribution limits. Min. contributions for ALE’s (based on ACA Affordability set by IRS)
IRS annual caps ($6,450 individual / $13,100 family for 2026)
Employee Classes
11 classes (full-time, part-time, seasonal, salaried, hourly, geographic, etc.)
All eligible employees get the same allowance (varied by family status only)
Health Insurance Requirements
Must have qualifying individual health insurance or Medicare
Any minimum essential coverage (individual, spouse’s plan, Medicare, Medicaid)
Premium Tax Credit Impact
“Affordable” ICHRA disqualifies employees from marketplace premium tax credits
Employees may still receive premium tax credits, reduced by allowance amount
ACA Employer Mandate
Satisfies the ACA employer mandate
Not applicable
Eligible Expenses
Individual health premiums + qualified medical expenses (IRS Publication 502)
Individual health premiums + qualified medical expenses (IRS Publication 502)
Best For
Employers of any size wanting more flexibility than group plans allow
Small businesses wanting a simple, budget-friendly health benefit
An HRA is employer-funded: the employer sets the allowance and reimburses employees for qualified expenses. An HSA (Health Savings Account) is employee-owned and requires enrollment in a high-deductible health plan (HDHP). HSA funds roll over and belong to the employee even if they leave the company. HRA funds remain with the employer. Employers can offer an HRA without requiring employees to have an HDHP.
It depends on the HRA type. With ICHRA, yes — but only to different employee classes. For example, you could offer a group plan to salaried employees and ICHRA to hourly workers. With QSEHRA, no — employers cannot offer a group plan alongside it.
No. HRA reimbursements for qualified medical expenses are tax-free for employees and tax-deductible for employers. Employer contributions are also exempt from payroll taxes.
Depending on the HRA type, eligible expenses include individual health insurance premiums, copays, deductibles, prescription drugs, dental and vision care, mental health services, and other expenses listed in IRS Publication 502.
A stipend is added to the employee’s paycheck and taxed as income. An HRA reimburses employees tax-free — the employee doesn’t pay income tax and the employer doesn’t pay payroll tax. HRAs also require documentation of qualified expenses, which provides compliance protection for the employer.
Yes. With ICHRA, employees enrolled in Medicare Parts A and B (or Part C) can participate and be reimbursed for Medicare premiums and out-of-pocket costs. With QSEHRA, employees with Medicare as their minimum essential coverage can also participate.
Talk to Benafica about setting up an ICHRA or QSEHRA for your business.
We’ll help you choose the right HRA type, design employee classes, and handle all the administration.
Call us at 651-287-3253 or fill out the form below.
