EBHRAs: A flexible health benefits choice for businesses

Today’s companies have several kinds of tax-advantaged accounts or arrangements they can sponsor to help employees pay eligible medical expenses. One of them is a Health Reimbursement Arrangement (HRA).

Under an HRA, your business sets up and wholly funds a plan that reimburses participants for qualified medical expenses of your choosing. (To be clear, employees can’t contribute.) The primary advantage is that plan design is very flexible, giving you greater control of your “total benefits spend.” Plus, your company’s contributions are tax deductible.

How flexible are HRAs? They’re so flexible that businesses have multiple plan types to choose from. Let’s focus on one in particular: excepted benefit HRAs (EBHRAs).

4 key rules

Although traditional HRAs integrated with group health insurance provide significant control, they’re still subject to mandates under the Public Health Service Act (PHSA), which was amended by the Affordable Care Act (ACA). This means you must deal with prohibitions on annual and lifetime limits for essential health benefits and requirements to provide certain preventive services without cost-sharing.

Because employer contributions to EBHRAs are so limited, participants’ accounts under these plans qualify as “excepted benefits.” Therefore, these plans aren’t subject to the ACA’s PHSA mandates. Any size business may sponsor an EBHRA, but you must follow certain rules. Four of the most important are:

1. Contribution limits. In 2025, employer-sponsors may contribute up to $2,150 to each participant per plan year. You can, however, choose to contribute less. You can also decide whether to allow carryovers from year to year, which don’t count toward the annual limit.
2. Qualified reimbursements. An EBHRA may reimburse any qualified, out-of-pocket medical expense other than premiums for:

• Individual health coverage,
• Medicare, and
• Non-COBRA group coverage.

Premiums for coverage consisting solely of excepted benefits can be reimbursed, as can premiums for short-term, limited-duration insurance (STLDI). However, under certain circumstances, federal agencies may prohibit small employer EBHRAs in some states from allowing STLDI premium reimbursement. (Contact your benefits advisor for further information.)

3. Required other coverage. Employer-sponsors must make other non-excepted, non-account-based group health plan coverage available to EBHRA participants for the plan year. Thus, you can’t also offer a traditional HRA.
4. Uniform availability. An EBHRA must be made available to all similarly situated individuals under the same terms and conditions, as defined and provided by applicable regulations.

Additional compliance matters

An EBHRA’s status as an excepted benefit means it’s not subject to the ACA’s PHSA mandates (as mentioned) or the portability and nondiscrimination rules of the Health Insurance Portability and Accountability Act (HIPAA).

However, EBHRAs are subject to HIPAA’s administrative simplification requirements. This includes the law’s privacy and security rules unless an exception applies — such as for certain small self-insured, self-administered plans.

In addition, like traditional HRAs integrated with group health insurance, EBHRAs sponsored by businesses are generally subject to the Employee Retirement Income Security Act (ERISA). This means:

• Reimbursement requests must comply with ERISA’s claim and appeal procedures,
• Participants must receive a summary plan description, and
• Other ERISA requirements may apply.

Finally, EBHRAs must comply with ERISA’s nondiscrimination rules. These ensure that benefits provided under the plan don’t disproportionately favor highly compensated employees over non-highly compensated ones.

Many factors to analyze

As noted above, the EBHRA is only one type of plan your company can consider. Others include traditional HRAs integrated with group health insurance, qualified small employer HRAs and individual coverage HRAs.

Choosing among them — or whether to sponsor an HRA at all — will call for analyzing factors such as what health benefits you already offer, which employees you want to cover, how much you’re able to contribute and which medical expenses you wish to reimburse. Let us help you evaluate all your benefit costs and develop a strategy for health coverage that makes the most sense for your business.

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