Healthcare costs continue to rise faster than wages, leaving many employees navigating a growing array of benefits options—sometimes with confusing acronyms. Among these, the health reimbursement arrangement, or HRA, has emerged as a powerful, employer-funded tool to manage out-of-pocket medical expenses while providing key tax advantages.
Unlike accounts funded by employees, HRAs are entirely employer-funded, offering reimbursement for qualified medical expenses without drawing from an employee’s paycheck. As a result, more employers may turn to HRAs in 2026 to control health costs and support access to high-demand treatments such as GLP-1 medications for weight management.
This guide will break down HRAs in detail, including what they are, how they work, who qualifies, and how employees can use their HRA to better manage healthcare costs.
What is an HRA?
A health reimbursement arrangement (HRA) is an employer-funded account that reimburses employees for qualified medical expenses.
HRAs provide a structured way for employers to support employees’ healthcare needs without requiring employees to pay upfront. The funds are also tax-free, giving employees a cost-efficient way to cover medical expenses like prescription medications, copays, or health plan premiums.
How do HRAs work?
An HRA is designed to reimburse employees for qualified medical expenses rather than providing upfront funds. Employers determine:
Eligibility rules
Contribution amounts
Reimbursement guidelines (e.g., what medical expenses can be reimbursed, how and when to reimburse participants)
Employees typically submit receipts or invoices for eligible medical costs, and the employer reimburses them tax-free, up to the amount available in the HRA.
HRAs are flexible, but they are employer-owned. This means that if you leave your job, access to the funds usually ends unless your plan allows limited post-employment use.
What do HRAs cover?
The IRS defines eligible expenses for HRAs under Section 213(d). Common reimbursable expenses include:
Prescription medications (e.g., GLP-1 medications like Zepbound®, which is manufactured by Eli Lilly and Company and approved by the FDA for chronic weight management)
Copays and coinsurance
Dental and vision services
Certain health insurance premiums (depending on the HRA type)
Employers can narrow or expand coverage based on plan design. Employees should review their HRA plan documents carefully to understand what is reimbursable.
How to use an HRA
Using an HRA is straightforward, but employees must keep organized documentation and be aware of plan rules, including deadlines for submitting claims.
Here’s how the process typically works:
Submission: Employees pay for an eligible medical expense out-of-pocket and submit receipts to the HRA administrator.
Reimbursement: The HRA reimburses the employee up to the available balance under the plan. Reimbursements are tax-free, reducing overall healthcare costs.
Tracking: Employees can monitor their balances and track claims through online portals or employer HR systems.
Who is eligible for an HRA?
Eligibility for an HRA depends entirely on the employer’s plan design. Some common types include:
Individual Coverage HRA (ICHRA): An ICHRA allows employers to reimburse employees for premiums or medical expenses while enrolled in individual health plans.
Qualified Small Employer HRA (QSEHRA): A QSEHRA is designed for small businesses with fewer than 50 employees to reimburse healthcare expenses, including premiums.
Employers determine eligibility based on criteria such as employment status, full-time vs. part-time, or enrollment in certain plans. It’s important to check the plan document to see if you qualify.
Benefits of HRAs
HRAs provide significant advantages for employees:
Employer-funded: No out-of-pocket contribution required to access funds.
Tax savings: Reimbursements are tax-free, reducing overall healthcare spending.
Flexibility: Can cover a wide range of medical expenses, from routine visits to high-cost prescriptions.
Predictability: Employers can set clear contribution amounts, giving employees confidence in available coverage.
Integration: Can work alongside other plans, including FSAs or limited-purpose accounts.
Limitations of HRAs
While HRAs offer strong benefits, there are potential trade-offs to consider:
Employer-controlled: Access to funds is determined entirely by the employer.
Limited portability: Typically, unused funds do not go with the employee to a new job.
Plan variability: Coverage rules, contribution amounts, and rollover options vary widely.
No investment growth: Funds do not earn interest or investment returns.
HRA vs. HSA vs. FSA: What’s the difference?
Employees often hear about HRAs, health savings accounts (HSAs), and flexible spending accounts (FSAs) and wonder how they compare. Each has unique features, advantages, and limitations. Understanding these differences helps employees choose the right account or combination of accounts to manage short-term and long-term healthcare costs efficiently.
Here’s a breakdown of how these options compare:
HRA (health reimbursement arrangement) | HSA (health savings account) | Health FSA (flexible spending account) | |
Ownership | Employer-owned | Employee-owned | Employer-owned (with possible employee contributions) |
Contribution limits | Set by employer; QSEHRA and excepted-benefit HRAs have statutory caps | $4,400 self / $8,750 family in 2026; +$1,000 catch-up for age 55+ | $3,400 in 2026 |
Eligibility | Determined by employer | Any individual covered under a high-deductible health plan (HDHP) | Determined by employer, but generally, any employee eligible for employer’s major medical plan |
Rollover | Plan-dependent; may allow full, partial, or no rollover | Unlimited; funds roll over year to year | Typically use-it-or-lose-it; optional $680 carryover |
Tax advantages | Tax-free employer contributions and reimbursements | Triple tax advantage: pre-tax contributions, tax-free growth, tax-free qualified withdrawals | Pre-tax contributions reduce taxable income; withdrawals for qualified expenses are tax-free |
Portability | Usually not portable; funds remain with employer | Fully portable across jobs and into retirement | Not portable; funds generally lost when leaving employer |
Investment options | None | Available after minimum balance ($500–$1,000); includes mutual funds, ETFs, stocks | None |
Common use cases | Routine medical expenses, copays, premiums, high-cost prescriptions | Deductibles, long-term healthcare savings, investment growth | Short-term medical, dental, vision expenses |
Finding the right HRA for your needs
When evaluating an HRA, employees should consider many different factors, such as:
Coverage needs: Are you paying for high-cost prescriptions or ongoing treatments?
Employer contribution levels: Does the HRA fund enough to cover anticipated expenses?
Plan flexibility: Can unused funds roll over, or are they forfeited annually?
Integration with other benefits: Does your HRA coordinate with FSAs or other plans?
Maximizing HRA benefits
To make the most of your HRA:
Track your balance: Know how much you can claim and plan for upcoming expenses.
Submit claims promptly: Avoid missing deadlines and ensure you receive reimbursement quickly.
Coordinate with other benefits: Use FSAs or insurance plans to cover additional expenses efficiently.
Plan for high-cost medications: HRAs can help cover expensive prescriptions like GLP-1 medications, reducing out-of-pocket costs.
Review plan rules annually: Employers may adjust contribution levels or eligible expenses each year.
Why HRAs matter
In 2026, HRAs remain a critical part of employer benefits strategy—providing predictability for healthcare costs and helping employees access the care they need while saving money. For example, they are particularly valuable for covering high-cost treatments like GLP-1 medications, routine doctor visits, and even premiums in some plans.
By understanding how HRAs work, what expenses are eligible, and how they compare with other accounts like HSAs and FSAs, employees can make more informed decisions to maximize their benefits.
HRA FAQs
Can I use HRAs for GLP-1 medications?
Yes. HRAs often cover prescribed GLP-1 medications like Zepbound®, Wegovy, or Ozempic. Coverage may include copays or full medication costs depending on your employer’s plan.
What happens to my HRA if I leave my job?
Because HRAs are employer-owned, access usually ends when you leave the company. Some plans may allow limited access post-employment; check your plan documents.
Are contributions to an HRA tax-deductible?
No. HRAs are fully employer-funded. However, the funds and reimbursements are tax-free for employees.
Do HRA funds roll over year to year?
It depends on your plan. Some HRAs forfeit unused funds, while others allow full or partial rollover. Review your plan document to understand your rollover policy.
How much can my employer contribute to my HRA?
In general, contribution limits are set by the employer, after considering a variety of issues, including any applicable nondiscrimination requirements. QSEHRAs and excepted-benefit HRAs have specific IRS-imposed caps, but there is no IRS limit on the amount an employer is allowed to contribute to other types of HRAs.
