An HRA (Health Reimbursement Arrangement) is an employer-funded benefit that reimburses employees for eligible medical expenses and, in some cases, health insurance premiums. Unlike traditional group health insurance, where the employer selects and manages a specific plan for all employees, an HRA lets employers better control healthcare costs and allows employees more flexibility and choice in how they use their healthcare dollars.
In this blog, we’ll break down how HRAs work, the different types available, and why more employers are considering them as a modern alternative to traditional group coverage.
How Does an HRA Work?
At its core, an HRA is a reimbursement system. The employer sets aside money each month, and employees get reimbursed for eligible healthcare expenses. But how it works in practice depends on the type of HRA your organization chooses.
Here’s a general overview of how it works:
- Employer Sets the Rules: The employer first decides which expenses will be reimbursable — such as health insurance premiums, doctor visits, prescriptions, or other qualified medical costs.
- Job Classes & Contributions: Employers can create different “job classes” (like full-time vs. part-time) and assign a specific monthly allowance for each group. For example, full-time employees might receive $500/month, while part-time employees receive $250/month.
- Funds Are Allocated Monthly: While the money doesn’t go directly to employees, a monthly amount is set aside for each eligible employee to use for approved expenses.
- Employees Pay, Then Get Reimbursed: Once employees pay for an eligible expense, they submit proof — typically a receipt or invoice — and get reimbursed up to their monthly allowance.
For recurring monthly health insurance premium costs, accounts can be set up to automatically reimburse those so it’s not a hassle for the employee.
Types of HRAs
A QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) is a health benefit designed specifically for businesses with fewer than 50 full-time employees. It allows employers to reimburse employees tax-free for medical expenses and individual health insurance premiums, up to annual contribution limits set by the IRS. QSEHRAs are a simple, cost-effective option for small employers who want to offer health benefits without the complexity of a traditional group plan.
Learn more about Benafica’s QSEHRA offering.
An ICHRA (Individual Coverage Health Reimbursement Arrangement) is a flexible health benefit option available to employers of any size. With no contribution limits, ICHRAs allow businesses to reimburse employees tax-free for individual health insurance premiums and other medical expenses. Employers can customize benefit amounts across different employee classes, making it a great fit for organizations looking to offer personalized, scalable health benefits.
Learn more about Benafica’s ICHRA offering.
HRA Benefits for Employers
HRAs offer a modern way to provide health benefits with cost control and administrative ease.
Cost Control: Set predictable monthly allowances that fit your budget.
Simplified Administration: No need to manage a group health plan or negotiate renewals.
Tax Advantages: Contributions are tax-deductible for the business and tax-free for employees.
HRA Benefits for Employees
HRAs empower employees with more choice and financial support for their healthcare.
Flexibility: Choose an individual health plan that fits your needs and preferences.
Tax-Free Reimbursements: Get reimbursed without paying taxes on eligible expenses.
Portability: Keep your health plan even if you change jobs or move to a new employer.
Why HRAs Matter
At Benafica, we believe HRAs are a game-changer, empowering both employers and employees to take control of their healthcare. With the right plan, businesses can offer meaningful, flexible benefits while keeping costs predictable.
Think an HRA might be right for your business?
Learn more about Benafica’s HRA solutions and discover how we can help you build a benefits program that works for your business.