A Health Reimbursement Account (HRA) is an employer-funded plan that reimburses employees for qualified medical expenses and sometimes insurance premiums. Designed to give employers more flexibility in providing health benefits, HRAs are a major component of modern healthcare planning in 2025.
An HRA is not a bank account in the traditional sense. Instead, it’s an arrangement where employers agree to cover a certain amount of an employee’s medical costs tax-free. As healthcare costs rise, more companies are turning to HRAs as a cost-effective and customizable alternative to traditional group insurance.
How a Health Reimbursement Account Works
The mechanics of an HRA are relatively straightforward:
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Employer sets an allowance – This is the amount the employer is willing to reimburse per employee.
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Employee pays out-of-pocket – For qualified medical expenses or insurance.
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Employee submits claims – Receipts and documentation are submitted for reimbursement.
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Employer reimburses tax-free – After review, the employer reimburses the approved amount.
Unlike an HSA (Health Savings Account), funds do not roll over unless the employer specifically allows it. Moreover, employees cannot contribute to an HRA. Only employers can fund it, making it a fully employer-sponsored benefit.
The History and Evolution of HRAs
Health Reimbursement Accounts have existed for over two decades but saw massive expansion after the introduction of the Affordable Care Act (ACA) and further refinements with the Trump administration’s 2020 HRA rule, allowing for Individual Coverage HRAs (ICHRA). By 2025, HRAs are more flexible and accessible than ever before.
New regulations have empowered small businesses and large corporations alike to customize their healthcare benefit strategies using HRAs, often replacing more expensive group health plans.
Types of Health Reimbursement Accounts in 2025
Individual Coverage HRA (ICHRA)
Introduced in 2020, the ICHRA allows employers to reimburse employees for individual health insurance premiums and qualified expenses. This approach is ideal for companies wanting to offer personalized health benefits without managing a group health plan.
Qualified Small Employer HRA (QSEHRA)
Designed for businesses with fewer than 50 full-time employees, the QSEHRA lets employers reimburse employees for health insurance premiums and certain medical expenses. Contribution limits are set annually by the IRS.
Integrated HRA
This traditional HRA must be integrated with a group health plan and typically reimburses deductibles, copays, and other out-of-pocket costs. It is often used by larger employers.
Who Can Benefit from a Health Reimbursement Account?
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Small businesses looking to offer competitive benefits
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Large corporations seeking cost-containment strategies
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Employees with unique healthcare needs
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Remote and contract workers under an ICHRA model
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Employers want to reimburse premiums instead of managing group plans
In 2025, HRAs offer unmatched versatility for both employers and employees, making them a practical choice across many sectors.
Key Features and Components of HRAs
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Employer-funded only
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Tax-free reimbursements
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No need for a bank account
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Customizable plan design
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Eligible for insurance premium reimbursements
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Dependent coverage possible
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Can be integrated or stand-alone
Employers can set contribution limits, eligible expenses, and coverage rules, giving them full control over the program’s structure.
HRA vs HSA: What’s the Real Difference?
While both HRAs and HSAs provide tax-free ways to pay for medical expenses, there are important differences.
In short, HRAs are employer-owned, meaning only your employer can fund and control them. HSAs, on the other hand, are employee-owned, offering more flexibility and portability. HSAs require enrollment in a high-deductible health plan (HDHP), but they come with a triple tax advantage—contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified expenses are tax-free.
An HRA is more structured, often with employer-specific rules, but still offers significant tax benefits and cost coverage for eligible expenses.
The Advantages of a Health Reimbursement Account
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Tax Efficiency – Reimbursements are 100% tax-free for employees.
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Cost Control for Employers – Employers can set precise budgets.
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Flexible Plan Design – HRAs can be tailored to different classes of employees.
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Support for Individual Coverage – ICHRAs allow employees to choose their insurance.
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Improved Retention – Offering HRAs shows commitment to employee well-being.
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Lower Administrative Burden – Compared to traditional group plans.
In 2025, HRAs are favored for their ability to balance cost-efficiency with personalization, making them a powerful healthcare benefit strategy.
Common Disadvantages and Challenges
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Lack of Portability – Funds do not follow the employee after termination.
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Employer-Controlled – Employees can’t contribute.
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Complex Setup for Small Employers – Regulatory compliance can be confusing.
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Limited Carryover – Funds may not roll over, depending on employer rules.
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IRS Regulations – Strict adherence is required to maintain tax-advantaged status.
Understanding these drawbacks can help both employers and employees manage expectations and usage.
Real-World HRA Scenarios
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A startup with 15 employees uses a QSEHRA to reimburse up to $6,000 per employee per year.
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A tech company offers an ICHRA, letting remote employees choose their own ACA-compliant plans.
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A law firm integrates an HRA with its group plan to cover deductibles and copays for attorneys.
Each scenario demonstrates how HRAs can be molded to meet specific business needs and employee expectations.
IRS Rules and 2025 HRA Compliance Requirements
Staying compliant with IRS and Department of Labor regulations is essential. Key rules include:
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Providing a written HRA plan document
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Clearly defining eligible expenses
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Maintaining privacy under HIPAA
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Offering ACA-compliant coverage for ICHRAs
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Distributing employee notices with coverage terms
Employers should work with legal or HR professionals to ensure their HRA plan meets all current regulations.
Tax Implications of HRAs in 2025
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Employers deduct reimbursements as business expenses.
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Employees receive reimbursements tax-free if used for qualifying expenses.
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No FICA taxes are paid on reimbursements.
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Non-qualified reimbursements may result in taxable income.
The IRS continues to clarify HRA rules each year. Employers should consult IRS Publication 969 for updates.
How to Maximize Your HRA Benefits
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Understand your employer’s plan rules
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Track all medical expenses meticulously
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Submit claims promptly
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Coordinate with other health accounts (FSA, HSA) wisely
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Ask about rollovers or unused funds
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Use funds strategically toward high-cost services
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Review plan annually during open enrollment
Optimizing your use of the HRA can help cover out-of-pocket costs and reduce financial stress related to healthcare.
Frequently Asked Questions
How does a health reimbursement account work?
An employer funds the HRA, and employees are reimbursed tax-free for eligible medical expenses or insurance premiums after submitting receipts or documentation.
What is the difference between an HSA and a health care reimbursement account?
HSAs are owned and funded by individuals and are portable. HRAs are employer-funded only and are not portable after leaving the job.
What is the disadvantage of a health reimbursement account?
A major disadvantage is that funds are not portable, and employees cannot contribute. Additionally, the employer controls plan design and reimbursement eligibility.
Is a health reimbursement account worth it?
Yes, HRAs are a valuable benefit, especially when employers offer generous reimbursement and employees understand how to use the account effectively.
Can HRA funds be used for premiums?
Yes, depending on the HRA type. ICHRAs and QSEHRAs can reimburse insurance premiums.
Are HRA reimbursements taxed?
No, they are generally tax-free if used for qualifying expenses and the plan complies with IRS rules.
Final Thoughts
A Health Reimbursement Account is one of the most powerful and flexible tools in the 2025 health benefits landscape. With multiple types of HRAs available—including ICHRA, QSEHRA, and Integrated HRAs—employers can now tailor benefits to suit any workforce. For employees, these accounts offer substantial tax-free reimbursements, improved healthcare access, and added financial security.
While HRAs come with certain limitations, especially regarding control and portability, the advantages often far outweigh the drawbacks. With proper planning, compliance, and communication, HRAs can serve as the foundation of a smarter, more affordable healthcare strategy for the modern workforce.
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About Dr Emily Reed
