As a business owner, you’re used to controlling your expenses. But health insurance premiums? They often feel like a runaway train. Those annual rate hikes make budgeting nearly impossible. A Health Reimbursement Arrangement (HRA) is designed to solve this exact problem. It puts you back in the driver’s seat by letting you set a fixed, predictable contribution for each employee. The new hra reimbursement rules have expanded how these arrangements can be used, giving you a powerful tool to manage costs while providing a valuable health benefit your employees will actually appreciate and use.

Key Takeaways

• Define your benefits budget with an HRA: Move away from the unpredictable costs of traditional group plans by offering a fixed, tax-free allowance that gives you financial control while empowering your employees.
• Stay compliant by focusing on the essentials: A successful HRA program requires you to calculate affordability correctly, provide timely written notices, and apply the benefit fairly across all eligible employee groups.
• Help your team understand their new benefits: Clearly communicating the value of an HRA, including the freedom to choose a personal health plan and the advantage of tax-free funds, is key to employee buy-in and appreciation.

What is a Health Reimbursement Arrangement (HRA)?

A Health Reimbursement Arrangement, or HRA, is an employer-funded health benefit used to reimburse employees for out-of-pocket medical expenses and, in some cases, health insurance premiums. Think of it less like a traditional health insurance plan and more like a tax-advantaged expense account for healthcare. You, the employer, set a monthly allowance for each employee, and they get to use those funds for their specific needs. It’s a way to offer meaningful health benefits while maintaining control over your budget.

Unlike a one-size-fits-all group plan, an HRA gives your team the flexibility to choose the care and coverage that works for them. Health Reimbursement Arrangements are defined by the IRS, which means they come with some great tax advantages. The money you contribute is tax-deductible for the business, and the reimbursements are tax-free for your employees. This structure provides a predictable, manageable way to support your employees’ health without the fluctuating costs and administrative headaches of traditional group insurance. It puts you back in control of your benefits strategy and gives your employees the freedom they value.

How Does an HRA Actually Work?

The process behind an HRA is straightforward. First, you decide how much tax-free money you want to offer each employee per month or year. There are no government-mandated minimums or maximums, so you can set an allowance that fits your company’s budget. When an employee incurs a qualified medical expense, they pay for it and then submit proof of payment, like a receipt or invoice. You then verify the expense and reimburse them up to their available allowance. For certain types of HRAs, employees must first have their own individual health insurance plan to participate, ensuring they have comprehensive coverage in place.

What Are the Different Types of HRAs?

Not all HRAs are created equal, and recent rule changes have introduced even more flexible options for employers. The two newest types are the Individual Coverage HRA (ICHRA) and the Excepted Benefit HRA (EBHRA). The Individual Coverage HRA is a big deal because it allows businesses of any size to reimburse employees for their individual health insurance premiums, effectively replacing a traditional group plan. The EBHRA works alongside a group plan to help cover additional costs like dental or vision care. These expanded HRA options give you more ways to design a benefits package that truly fits the needs of your business and your team.

What Do the New HRA Reimbursement Rules Mean for You?

Recent updates to Health Reimbursement Arrangements (HRAs) have changed the game for employer-sponsored health benefits. These changes introduce new, more flexible ways for you to help your employees cover their medical costs. Instead of being limited to a one-size-fits-all group plan, you now have more options to design a benefits package that truly fits your team and your budget. Let’s look at the two main types of HRAs introduced by these new rules and what they mean for your business.

What Is an Individual Coverage HRA (ICHRA)?

Think of the Individual Coverage HRA (ICHRA) as a modern alternative to traditional group health insurance. Instead of choosing a single plan for everyone, you can offer your employees a tax-free allowance. They can then use this money to purchase their own individual health insurance plan from the marketplace. According to the Internal Revenue Service, these new rules make it possible for HRAs to be used with individual health insurance plans or Medicare. This approach gives your employees the freedom to pick a plan that works best for them and their families, while you maintain control over your benefits budget. It’s a powerful way to provide meaningful health benefits without the administrative burden of managing a group plan.

ICHRA Contribution and Enrollment Rules

One of the best parts about an ICHRA is the financial control it gives you. You decide on the monthly tax-free allowance you want to offer, and that’s it—no surprise rate hikes. A key rule to know is that there are no government-mandated limits on how much you can contribute. This means you can set an allowance that genuinely fits your company’s budget and even vary the amounts for different employee classes, like full-time versus part-time staff. This flexibility allows you to design a benefits package that is both meaningful for your team and sustainable for your business.

For your employees to use their ICHRA funds, they must be enrolled in their own individual health insurance plan. This could be a plan from the state marketplace, a private insurer, or even Medicare. A huge advantage of this setup is that offering an ICHRA triggers a Special Enrollment Period. This gives your employees a 60-day window to shop for and enroll in a health plan, even if it’s outside the standard fall open enrollment season. It ensures your team can get the coverage they need, right when you decide to offer the new benefit. Helping your employees understand these HRA account rules and find the right plan is crucial for a smooth transition.

How Does the Excepted Benefit HRA Work?

The Excepted Benefit HRA works a bit differently. This type of HRA isn’t a replacement for your main health plan; it’s a supplement to it. If you already offer a traditional group health plan, you can add an Excepted Benefit HRA to help your employees cover out-of-pocket medical expenses that aren’t fully paid for by the primary plan. This can include things like dental or vision care, copays, and deductibles. It’s a great way to enhance your existing benefits package and provide extra financial support for your team’s healthcare needs. The Centers for Medicare & Medicaid Services explains this HRA helps cover extra medical costs the main plan doesn’t.

EBHRA Eligibility Rules

To offer an Excepted Benefit HRA, you must first provide a traditional group health plan. The EBHRA is designed as a supplement, not a standalone benefit, so this is a non-negotiable starting point. You must make the EBHRA available to all similarly situated employees, ensuring the offer is fair and uniform across the board. For example, you could offer it to all full-time employees. Interestingly, while you are required to offer the group plan, your employees don’t actually have to enroll in it to be eligible for the EBHRA. This gives them the flexibility to use the funds for dental, vision, or other accepted costs, even if they have coverage elsewhere. The IRS has specific guidelines that classify these as “limited excepted benefits,” which is crucial for maintaining compliance. Getting these rules right ensures your benefits strategy is both effective and sound.

How New Rules Create More Reimbursement Flexibility

Ultimately, these new HRA rules are all about giving you more flexibility. You’re no longer locked into a single path for providing health benefits. Whether you want to move away from a traditional group plan with an ICHRA or enrich your current offerings with an Excepted Benefit HRA, you have more tools at your disposal. These options allow you to create a benefits strategy that aligns with your company’s financial goals while giving your employees more choice and control over their healthcare. This increased flexibility makes it easier to attract and retain top talent by offering a competitive and personalized benefits package that meets the diverse needs of your workforce.

What is a Qualified Small Employer HRA (QSEHRA)?

If you run a smaller business, there’s another type of HRA designed specifically for you: the Qualified Small Employer HRA, or QSEHRA. This arrangement is a great fit for companies with fewer than 50 full-time employees that don’t offer a traditional group health plan. A QSEHRA allows you to set aside a fixed amount of money to reimburse your team for their qualified medical expenses, including their own individual health insurance premiums. It’s a tax-smart way to support your employees’ health, as your contributions are tax-deductible and the money your employees receive is tax-free. This gives you a simple, budget-friendly way to provide a valuable health benefit without the administrative weight of managing a group plan, empowering your team to choose coverage that fits their lives.

QSEHRA Contribution Limits and Eligibility

To offer a QSEHRA, your business must have fewer than 50 full-time equivalent employees and cannot offer a group health plan. This makes it an ideal solution for many small groups looking for a flexible benefits alternative. Once you confirm your eligibility, you can decide on a monthly allowance. The IRS sets annual maximums—for example, in 2026, the contribution limits are $6,450 for an individual and $13,100 for a family—but you have the freedom to set any contribution amount up to that cap. This flexibility allows you to design a benefit that fits your budget perfectly while still giving your employees a meaningful amount to put toward their healthcare. It’s a predictable and powerful way to compete for talent without the unpredictable premium hikes of traditional insurance.

How the New HRA Rules Affect Washington Employers

As a Washington employer, you’re likely wondering how these federal HRA changes play out on a local level. The good news is that these new rules open up a world of flexibility, allowing you to design a benefits package that truly fits your team and your budget. But with that flexibility comes a new set of responsibilities. Understanding the key requirements around compliance, affordability, and eligibility is the first step to successfully offering an HRA that works for your business and your employees. Getting these details right ensures you can provide meaningful benefits while staying on the right side of regulations.

Your HRA Compliance and Reporting Checklist

First things first: let’s talk about compliance. The new regulations are especially important for employers who offer ICHRAs and want to be sure they comply with the employer shared responsibility mandate. This isn’t just about checking boxes; it’s about protecting your business from potential penalties. Your main responsibilities include providing a written notice to eligible employees at least 90 days before the plan year begins, establishing clear procedures for substantiating employee medical expenses, and meeting specific reporting requirements. If you manage a small group, keeping these details organized from the start will make administration much smoother down the road.

How to Calculate HRA Affordability

One of the most important compliance pieces is making sure your HRA offer is considered “affordable.” An HRA is affordable if an employee’s required contribution for the lowest-cost silver plan on the individual marketplace, after your HRA contribution, is less than a certain percentage of their household income. This percentage is adjusted annually by the IRS. For an HRA to meet the federal affordability threshold, your contribution needs to be large enough to bridge that gap for your employees. Calculating this for each employee can feel complicated, but it’s a critical step in ensuring your HRA is a qualifying health plan.

Which Employees Are Eligible for an HRA?

The new rules give you more control over who you can offer an HRA to. You can offer an HRA to all your employees or to specific groups, known as “classes.” These classes can be based on job-based criteria, like full-time versus part-time status, salaried versus hourly pay, or even geographic location. This means you could offer a traditional group plan to your full-time office staff in Seattle and an ICHRA to your part-time or remote employees across the state. This flexibility allows you to create a tailored benefits strategy that aligns with your hiring goals and budget, which is one of the top reasons to choose an HRA.

Rules for Business Owners

Offering an HRA gives you significant control, but it’s important to follow a few key rules to keep your plan compliant. The IRS requires that your HRA is fair to all employees, which falls under what they call nondiscrimination rules. This simply means you must offer the same HRA terms to all employees within a specific class—you can’t offer a better deal to executives than you do to others in the same group. Additionally, if your company has 50 or more full-time equivalent employees, you must still meet the employer shared responsibility provisions. This ties back to ensuring your HRA offer is affordable, which protects your business from potential penalties. Managing these details is exactly where an expert partner can help, ensuring your benefits strategy is both competitive and compliant.

Covering Spouses, Dependents, and Children

One of the best features of an HRA is that the funds aren’t just for the employee. Your team members can also use their HRA allowance to pay for medical expenses for their spouse, their dependents, and their children up to the end of the taxable year they turn 26. This is a huge advantage for employees with families, as it allows them to use their tax-free funds for everything from their child’s braces to their spouse’s prescription medications. The IRS has a comprehensive list of what qualifies as a medical care expense. This flexibility makes the HRA a much more valuable and practical benefit, helping your employees manage their family’s overall healthcare costs. When you’re ready to design a plan that supports your entire team, we can help you get started.

What’s in It for Your Employees?

When you’re considering changes to your benefits package, the first question is often, “How will this affect my team?” The great news is that the new HRA rules offer significant advantages for your employees, making your benefits package more attractive and personalized. Instead of a one-size-fits-all approach, HRAs give your team the power to choose coverage that truly fits their lives. This shift toward flexibility and individual choice can be a powerful tool for keeping your current team happy and attracting new talent. It shows you trust your employees to make the best healthcare decisions for themselves and their families, backed by your financial support. Let’s look at the key benefits your employees will enjoy.

The Freedom to Choose Their Own Health Plan

One of the biggest wins for employees is the ability to select their own health insurance plan. With an Individual Coverage Health Reimbursement Arrangement (ICHRA), you provide a set amount of tax-free funds, and your employees can shop for a plan on the individual market that meets their specific needs. This means they aren’t locked into a single group plan. If an employee wants to keep their current doctor, find a plan with better prescription coverage, or choose a network that includes a specific hospital, they have the freedom to do so. This level of personalization is a game-changer, especially for employees with unique health needs or those who have dependents with different coverage requirements.

Using the Special Enrollment Period

One of the most powerful features of offering an HRA is that it creates a Special Enrollment Period for your employees. This means they aren’t stuck waiting for the annual open enrollment window to sign up for a health plan. According to the Centers for Medicare & Medicaid Services, both QSEHRA and ICHRA can be started at any time of the year. This gives you, the employer, the flexibility to implement a new benefits plan whenever it makes sense for your business. For your team, it means they can enroll in an individual health plan as soon as they become eligible for your HRA, providing timely access to the coverage they need.

This flexibility is a huge advantage for employees who experience major life events outside of the typical open enrollment season, like getting married, having a baby, or moving. The Internal Revenue Service confirms that these rules allow HRAs to be used with individual health insurance plans, giving your team the freedom to choose coverage that fits their new circumstances. By leveraging the Special Enrollment Period, you can offer a benefit that adapts to your employees’ lives, ensuring they can make informed healthcare decisions when it matters most. It’s a key part of what makes an HRA a modern, employee-centric benefit.

The Advantage of Tax-Free Reimbursements

The financial benefits of an HRA are clear and compelling for your team. When you contribute to an employee’s HRA, that money is completely tax-free. This means every dollar you provide goes directly toward their healthcare costs, like premiums and out-of-pocket medical expenses, without being reduced by income or payroll taxes. For employees, this is like getting a raise dedicated solely to their health and well-being. It makes quality healthcare more affordable and accessible, easing the financial burden that can come with medical costs. This tax-free advantage makes your contribution more valuable and impactful for your team.

Giving Your Team More Flexible Coverage Options

The new HRA rules open up a world of choice for your employees. Instead of being limited to the handful of options in a traditional group plan, they can explore the entire individual insurance market to find their perfect fit. To use the HRA funds, an employee must be enrolled in their own individual health insurance plan, which allows for incredible customization. A young, healthy employee might opt for a high-deductible plan with a lower premium, while an employee with a growing family might choose a plan with more comprehensive coverage. This flexibility ensures that your benefits package works for everyone, no matter their stage of life or health situation.

Pairing an HRA with a Health Savings Account (HSA)

Many employees value the long-term savings potential of a Health Savings Account (HSA), and you might wonder if it can be used alongside an HRA. The answer is yes, but with an important condition. For an employee to contribute to their own HSA, the HRA you offer must be structured in a specific way. According to HRA account rules, an ICHRA must be set up to reimburse only for health insurance premiums, not for other medical expenses. This setup prevents the HRA from interfering with the high-deductible health plan (HDHP) requirement for HSA eligibility. By designing your HRA this way, you can offer a powerful combination of benefits: your direct financial support for premiums through the HRA, plus your employees’ ability to save for future medical costs tax-free in their own HSA.

Understanding HRA Fund Rollovers

One of the most common questions about HRAs is what happens to unused funds. Within a plan year, an employee’s HRA allowance typically rolls over from one month to the next, giving them flexibility. However, whether those funds roll over from one year to the next is entirely up to you, the employer. You can design your plan so that any unused money at the end of the year is forfeited and returns to the company. This “use-it-or-lose-it” approach provides a significant cost-control advantage, as you only pay for the benefits your employees actually use. This feature gives you budget predictability while still offering your team a substantial monthly health benefit.

What Happens to HRA Funds After Employment?

Unlike an HSA, where the funds belong to the employee and are portable, the money in an HRA is owned by the employer. If an employee leaves your company, any remaining balance in their HRA allowance stays with your business. The funds are not paid out and cannot be taken with them. This is a key distinction that provides another layer of financial protection for your company. It’s important to communicate this clearly to your team so they understand how the benefit works from the start. For more detailed answers to common employee questions, our FAQ page is a great resource to share with your team during open enrollment.

HRAs, Affordability, and Tax Credits: What to Know

When you offer a Health Reimbursement Arrangement (HRA), you give your team incredible flexibility. But this flexibility comes with a few rules, especially around how HRAs interact with the Health Insurance Marketplace and tax credits. Understanding these connections is key to helping your employees get the most value from their benefits. The main concepts to get familiar with are “affordability” and how it affects your team’s eligibility for government subsidies. It might sound complicated, but it boils down to a few straightforward rules that ensure employees are treated fairly, whether they use your HRA or seek other options. Let’s walk through what you need to know.

Is Your HRA Offer Considered Affordable?

The term “affordable” has a specific definition when it comes to HRAs. An HRA is considered affordable if your employee’s monthly premium for the cheapest silver-level health plan in their area, after your contribution, is less than a set percentage of their household income. The IRS sets this affordability threshold annually. To check this, you’ll need to find the cost of the lowest-cost silver plan available either where your employee lives or at your primary worksite. This calculation is the official test for determining if your Health Reimbursement Arrangements meet federal standards, which directly impacts your employees’ other coverage options.

The Affordability Percentage Explained

So, what exactly does the IRS mean by “affordable”? It all comes down to a simple calculation. Your HRA offer is considered affordable if the amount an employee would have to pay for the cheapest silver-level health plan in their area—after you apply your HRA contribution—is less than a specific percentage of their household income. This percentage isn’t static; the IRS adjusts it each year. This rule is important because if your HRA is affordable, your employee isn’t eligible for a premium tax credit on the marketplace. If it’s unaffordable, they have the choice to opt out of the HRA and take the tax credit instead.

Using IRS Safe Harbors to Confirm Affordability

Asking for your employees’ household income isn’t practical or appropriate, which is why the IRS created “safe harbors.” These are simplified methods that let you confirm affordability without needing private financial details from your team. Instead of using household income, you can use information you already have, like an employee’s W-2 wages or their rate of pay. You compare your HRA contribution to the cost of the lowest-cost silver plan for self-only coverage in your employee’s area. Using a safe harbor makes compliance much more straightforward and helps you confidently find the right plan to use as your benchmark.

Meeting the Minimum Value Requirement

Along with affordability, health plans also need to meet a “minimum value” standard, which means the plan covers at least 60% of total allowed medical costs. This might sound like another complicated rule to track, but the IRS has made it easy for HRAs. If your HRA is considered affordable using one of the official safe harbors, it automatically meets the minimum value requirement as well. This connection simplifies your compliance duties significantly. Ensuring your HRA checks both these boxes is essential for meeting employer mandate requirements, and it’s where having expert guidance can make all the difference in setting up your plan correctly from day one.

How Do HRAs Work with Marketplace Plans?

An HRA gives your employees tax-free funds to pay for their own health insurance and other qualified medical expenses. The key is that they must have their own individual health plan to use these funds for premiums. This gives them the freedom to choose a plan that truly fits their needs. Employees can shop for coverage on the Washington Healthplanfinder (our state’s Marketplace), buy a plan directly from a private insurance company, or even use the HRA funds for Medicare premiums if they are eligible. This setup separates the health plan from the job, giving employees more control and choice over their health reimbursement arrangements.

Will Your Employees Still Qualify for Tax Credits?

This is where affordability really matters. If the HRA you offer is officially “affordable,” your employees and their families cannot receive premium tax credits from the Marketplace. This is true even if they decide to turn down your HRA offer. However, if your HRA is deemed “not affordable,” your employees have a choice to make. They can either accept and use the HRA funds you provide, or they can reject the HRA and apply for premium tax credits through the Marketplace instead. It’s important to know they can’t have both. This choice allows them to select the option that provides the best financial benefit for their specific situation when considering an individual coverage HRA.

Common Hurdles When Setting Up an HRA

Health Reimbursement Arrangements offer a fantastic way to give your employees more control over their health care while managing your company’s costs. The flexibility is a huge draw for many Washington employers, allowing you to design a benefits package that truly fits your team and your budget. But let’s be honest, switching to any new benefits model comes with a few hurdles. Setting up an HRA isn’t as simple as just handing out money for health expenses; it requires careful planning and a solid strategy to get it right.

Thinking through these potential challenges ahead of time will save you headaches down the road and ensure your HRA launch is a success. From the initial administrative tasks to making sure your team understands and appreciates their new benefits, there are several key areas where you’ll want to focus your attention. The goal is to create a program that feels like a genuine benefit to your employees and is sustainable for your business. When you get the setup right, you build trust and show your team that you’re invested in their well-being. With a clear understanding of the potential bumps in the road, you can build a plan to handle them smoothly.

Navigating HIPAA and Privacy Rules

One of the biggest hurdles to clear is privacy. When you offer an HRA, you’re stepping into the world of employee health data, and that means you need to be compliant with the Health Insurance Portability and Accountability Act (HIPAA). Because HRAs involve Protected Health Information (PHI), you have a legal duty to keep that data secure. This involves creating clear privacy policies, training your team on how to handle sensitive information, and ensuring only authorized staff can access it for plan administration. Getting your HIPAA compliance in order isn’t just about avoiding fines; it’s about building trust. When your employees know their personal health information is safe, they can feel confident in the benefits you’re offering.

Tackling Administrative Work and Setup Costs

The first thing to prepare for is the initial setup. Implementing an HRA involves more than just deciding on a reimbursement amount. You need to create a formal plan document that outlines all the rules and have a system in place to manage reimbursements and verify expenses. Plus, you’re required to let your employees know about the new plan at least 90 days before it begins. For a busy team, this administrative work can feel like a heavy lift. Getting the structure right from the beginning is crucial for compliance and a smooth employee experience, which is why many businesses find it helpful to have an expert guide them through getting started.

How to Explain New HRA Benefits to Your Team

A new type of health benefit can sometimes cause confusion. Your employees might be used to traditional group plans, and an HRA works differently. It’s common for team members to have misconceptions, perhaps thinking an HRA offers fewer benefits or is more complicated to use. Your main task is to clearly communicate how the HRA works and highlight the advantages, like the freedom to choose their own insurance plan. Proactive and simple communication can prevent misunderstandings and help your team see the true value of the benefit you’re offering. Answering questions upfront will make the transition much easier for everyone and build excitement for the new plan.

How to Budget for Your HRA Program

While you have the flexibility to decide how much money to contribute to each employee’s HRA, this freedom also presents a challenge. You need to find the sweet spot: an amount that is meaningful enough to help your employees cover their health care costs but also fits comfortably within your company’s budget. You’ll want to consider the diverse needs of your team, as a younger employee might have very different health expenses than an employee with a family. Setting a budget requires a careful look at your finances and your team’s demographics to create a plan that is both competitive and sustainable for the long term.

What Are the HRA Compliance and Reporting Requirements?

Setting up a Health Reimbursement Arrangement (HRA) comes with a new set of rules, but don’t let the word “compliance” intimidate you. Staying on top of these requirements is all about clear communication, fairness, and accurate record-keeping. Getting these pieces right from the start protects your business from potential penalties and ensures your employees can use their new benefit without any hitches. Think of it as the foundational work that makes the whole program a success.

We can break down the major compliance duties into three main areas: notifying your employees, following fairness rules, and keeping up with reporting. Each one has specific guidelines, and while they might seem complex, they’re straightforward once you know what to look for. These rules are in place to make sure everyone is treated equitably and has the information they need to make smart decisions about their health care. If you ever have questions about the specifics, our team is always here to help you find the answers on our FAQ page. Let’s walk through what you need to know to keep your HRA running smoothly and effectively for your team.

How to Meet Employee Notification Deadlines

You can’t just roll out an HRA and call it a day. You have to give your employees a heads-up with all the essential details. For example, if you offer a Qualified Small Employer HRA (QSEHRA), you must inform your team at least 90 days before the plan year begins. Your written notice needs to include the annual benefit amount they’ll receive and a reminder that they must report this benefit if they apply for tax credits on the health insurance marketplace. It also needs to include a warning that the benefit may be taxed if they don’t maintain minimum essential health coverage. This QSEHRA guide provides a great overview of these requirements.

Understanding HRA Nondiscrimination Rules

Fairness is a cornerstone of HRA compliance. You must offer the HRA on the same terms to all employees within a specific class. For example, you can create separate classes for full-time, part-time, or salaried employees, but you can’t offer a better deal to your executive team than you do to other full-time staff. These rules are especially important for employers offering Individual Coverage HRAs (ICHRAs) who need to meet the employer shared responsibility mandate. The goal is to prevent discrimination and ensure everyone who is eligible has equal access to the benefit, which helps you create a fair and supportive workplace.

Staying on Top of Reporting Obligations

The rules around benefits and reporting aren’t static; they evolve over time. For instance, two new laws, the Paperwork Burden Reduction Act (PBRA) and the Employer Reporting Improvement Act (ERIA), have introduced significant changes to ACA employer information reporting obligations. These updates affect how you provide information to employees under the Affordable Care Act (ACA). Staying current with these changes is critical for avoiding compliance issues. This is where having a dedicated partner can make all the difference, as we keep track of legislative updates so you can focus on your business.

Looking Ahead: Health Plan Changes in 2026

Expanded HSA Eligibility for Bronze and Catastrophic Plans

Get ready for a significant shift in health benefits coming in 2026. A new federal rule will reclassify all Bronze and Catastrophic plans on the ACA Marketplace as qualifying High-Deductible Health Plans (HDHPs). This is a big deal because it means your employees who choose these affordable plans will now be able to open and contribute to a tax-advantaged Health Savings Account (HSA). Previously, this powerful savings tool was off-limits for many, especially those with Catastrophic coverage. This expansion of HSA eligibility gives your team a fantastic way to manage their healthcare costs with pre-tax dollars. For you, it makes these cost-effective plans an even more attractive foundation for your HRA, allowing you to offer a robust benefits package that provides both coverage and a way to save.

Need Help Setting Up Your HRA?

After covering the rules, requirements, and potential challenges, you might be wondering where to even begin. The good news is, you don’t have to become an HRA expert overnight. Setting up a Health Reimbursement Arrangement involves careful planning and a solid understanding of compliance, but the right partner can handle the heavy lifting for you.

An experienced benefits advisor can help you design a plan that fits your budget, meets your employees’ needs, and keeps you on the right side of regulations. This partnership is about more than just paperwork; it’s about creating a benefits strategy that truly works for your business. By leaning on an expert, you can confidently offer a valuable benefit without getting bogged down in the administrative details.

Why Partner with a Benefits Advisor?

Navigating the world of HRAs can feel like a full-time job, especially with all the rules and regulations involved. That’s why getting expert advice isn’t just a good idea; it’s a crucial step. Even HealthCare.gov recommends that if you’re unsure about an HRA, you should talk to a broker or benefits specialist. A knowledgeable advisor acts as your guide, helping you choose the right type of HRA for your company’s goals and budget. They can model different contribution strategies, ensure your plan is compliant from day one, and save you from costly mistakes down the road. Think of them as a dedicated member of your team focused solely on making your benefits a success.

How to Simplify HRA Administration and Enrollment

Once your HRA is designed, the next step is managing it effectively. A streamlined process for administration and enrollment is key to a successful program. The IRS allows employers to follow proposed rules even before they are finalized, which means you can proactively set up your plan for long-term compliance. Many businesses use specialized platforms to ease the administrative load, helping to verify that employees are enrolled in individual health plans and paying their premiums. Clear communication is also essential. For example, employers offering a QSEHRA must provide a written notice to employees at least 90 days before the plan starts, detailing the benefit amount and other key information. A good advisor will manage these details for you, from employee communications to ongoing compliance checks.

Related Articles

• The Ultimate Guide to HRA Reimbursement Rules
• HRA Plan 101: The Ultimate Guide for Employers
• How to Use HRA Money: A Step-by-Step Guide
• What is an HRA in Insurance? A Complete Guide
• HRA Reimbursement: A Step-by-Step Guide

Frequently Asked Questions

What’s the biggest difference between an HRA and a traditional group health plan? The main difference comes down to choice and control. With a traditional group plan, you select a few specific health plans for your entire team. With a Health Reimbursement Arrangement, you provide a tax-free allowance, and your employees choose their own individual insurance plans from the open market. This gives them the freedom to find coverage that fits their personal needs, while you maintain predictable control over your benefits budget.

How do I figure out the right contribution amount for my employees? Finding the right contribution amount is about striking a balance between what’s meaningful for your team and what’s sustainable for your business. A good starting point is to research the average cost of individual health plans in your area. You want to offer an amount that genuinely helps your employees cover their premiums and medical costs. It’s also important to consider your overall budget and create a contribution strategy that you can maintain for the long term.

Can I offer an HRA to some employees but not others? Yes, you can. The rules allow you to offer HRAs to specific groups of employees, which are called “classes.” For example, you could create classes based on job status (like full-time versus part-time) or location. The key is that you must offer the same HRA terms to everyone within a particular class to ensure fairness and comply with nondiscrimination rules.

Will my employees lose out on government subsidies if I offer an HRA? This depends on whether your HRA offer is considered “affordable” by government standards. If your contribution makes the cost of a standard health plan affordable for an employee, they will not be eligible for premium tax credits on the Marketplace. If your offer is not considered affordable, your employee has a choice: they can accept your HRA or they can decline it and apply for the tax credits instead. They cannot, however, use both at the same time.

Is it difficult to manage the paperwork and administration for an HRA? Setting up an HRA does involve some initial administrative work, like creating official plan documents and establishing a system for verifying expenses and processing reimbursements. While it requires careful attention to detail to ensure compliance, it doesn’t have to be difficult. Partnering with a benefits advisor can simplify the entire process, as they handle the setup, communication, and ongoing management for you.