What Is an HRA? Health Reimbursement Arrangement Explained

A Health Reimbursement Arrangement (HRA) is an employer-funded benefit that reimburses employees tax-free for qualified medical expenses. Unlike an HSA or FSA — where the employee contributes their own money — an HRA is funded entirely by the employer. The employee never contributes to an HRA. The employer sets the allowance, the employee incurs qualifying expenses, submits documentation, and receives tax-free reimbursement up to the employer's specified limit.

HRAs are more common in tech and large corporate environments than most employees realize. They sometimes appear as a component of a benefits package without being clearly labeled. If your employer offers a dollar amount for healthcare expenses separate from your health insurance, or pays part of your health insurance premium through a company account, there is likely an HRA involved.

Why the HRA Type Matters for Your HSA

The most important thing to understand about HRAs is their interaction with HSA eligibility. Most standard HRAs disqualify you from contributing to an HSA — even if you are enrolled in an HSA-compatible HDHP.

The reason: an HSA requires that you have no other first-dollar health coverage. A traditional HRA that reimburses general medical expenses before your HDHP deductible is met counts as disqualifying coverage, because it effectively provides benefits before you reach your deductible — which violates the HDHP requirement.

However, certain types of HRAs are specifically designed to be HSA-compatible. Whether your HRA disqualifies your HSA depends entirely on what type of HRA you have. See What Is an HDHP? for how HDHP eligibility rules work.

The Three Types of HRA Tech Workers Encounter

1. Traditional (Integrated) HRA

The most common HRA in large employer benefit packages. A traditional HRA is paired with a group health insurance plan and reimburses employees for out-of-pocket medical expenses — deductibles, copays, coinsurance. The employer sets an annual allowance (for example, $1,500 per employee).

HSA compatibility: A traditional HRA that pays for general medical expenses before the HDHP deductible is met disqualifies HSA contributions. If your employer offers both an HDHP and a traditional HRA, you cannot contribute to an HSA while the HRA is active — unless the HRA is structured as a post-deductible HRA (see below).

Post-deductible HRA exception. If the traditional HRA is designed to reimburse expenses only after the HDHP deductible is met, it is HSA-compatible. This is called a post-deductible HRA. Your employer must specifically design it this way. If unsure whether your HRA is post-deductible or general-purpose, ask your benefits administrator before contributing to an HSA.

2. Individual Coverage HRA (ICHRA)

Introduced in 2020, an ICHRA allows employers of any size to reimburse employees for individual health insurance premiums — either purchased on the ACA marketplace or directly from an insurer. The employer sets a monthly allowance, employees choose their own plan, and the employer reimburses premiums up to the allowance.

ICHRAs are increasingly used by smaller tech companies and startups that do not want to manage a group health plan. They can also be offered by larger employers to specific employee classes (for example, part-time employees or employees in certain locations) separately from a group plan offered to full-time staff.

HSA compatibility with ICHRA. An ICHRA can be HSA-compatible if the employee uses the ICHRA exclusively to pay premiums for an HSA-eligible HDHP (not purchased through the exchange). An ICHRA used to purchase a marketplace plan does not qualify — even if the marketplace plan meets HDHP thresholds — because of how the IRC rules interact. This is a nuanced area where the details of plan design matter significantly. Consult your benefits administrator.

ACA subsidy interaction. If your employer's ICHRA is considered "affordable" under federal standards, you are not eligible for ACA premium tax credits on a marketplace plan. If the ICHRA is unaffordable, you can opt out of the ICHRA and take a marketplace subsidy instead. You cannot do both.

3. Qualified Small Employer HRA (QSEHRA)

A QSEHRA is available only to employers with fewer than 50 full-time equivalent employees that do not offer any group health plan. It reimburses employees for individual health insurance premiums and, in some plans, out-of-pocket medical expenses. The 2026 annual contribution limit for a QSEHRA is $6,450 for self-only coverage and $13,100 for family coverage (IRS Rev. Proc. 2025-32).

QSEHRAs are most relevant for employees at seed-stage startups and small tech companies. Unlike ICHRAs, QSEHRAs must be offered to all W-2 full-time employees on the same terms.

HSA compatibility with QSEHRA: A QSEHRA generally disqualifies HSA contributions because it reimburses general medical expenses, providing a form of coverage before the HDHP deductible is met. An exception applies if the QSEHRA is specifically limited to reimbursing insurance premiums only (not out-of-pocket medical expenses) and the employee is enrolled in an HDHP.

HRA vs. FSA vs. HSA: The Core Differences

For a detailed comparison of FSA and HSA, see HSA vs. FSA: What's the Difference?

Limited-Purpose HRA: The HSA-Compatible Option

A limited-purpose HRA (sometimes called a dental/vision HRA or excepted benefit HRA) reimburses only dental and vision expenses. Because it does not provide first-dollar coverage for general medical costs, it does not disqualify HSA contributions. The 2026 excepted benefit HRA limit is $2,200 per employee.

This structure mirrors the limited-purpose FSA (LPFSA) — both are restricted to dental and vision only, and both can be held alongside an HSA. If your employer offers an HDHP with an HSA, any HRA they offer alongside it should be a limited-purpose HRA. If they offer a general HRA alongside the HDHP and you want to contribute to your HSA, ask your benefits administrator to confirm the HRA is structured as post-deductible or limited-purpose.

How to Find Out What Type of HRA You Have

Your Summary Plan Description (SPD) must disclose the type and terms of any HRA your employer offers. Specifically, look for:

• Whether the HRA reimburses expenses before or after the HDHP deductible is met
• Whether it is limited to specific expense categories (dental, vision) or covers general medical expenses
• Whether it reimburses premiums or out-of-pocket costs

If your employer offers both an HDHP and an HRA, and you want to contribute to an HSA, confirm in writing with your benefits administrator that the HRA is HSA-compatible before making HSA contributions.

California Note

California's treatment of HRAs generally conforms to federal tax treatment for employer-funded HRA reimbursements — reimbursements received by employees are not subject to California state income tax. However, for individual-coverage HRAs (ICHRAs) where the employee purchases their own plan, the California tax treatment can depend on how the premium is structured. Consult a California tax professional if you receive ICHRA reimbursements.