Can an HRA Be Used for Health Insurance Premiums?

A Health Reimbursement Arrangement (HRA) is an employer-funded benefit plan that provides tax-free reimbursements for qualified medical expenses. A common question is whether these funds can be used for health insurance premiums. The answer depends on the specific type of HRA an employer offers, as some are designed for this purpose while others prohibit it.

The General Rule for Standard HRAs

A standard or integrated HRA is paired with an employer’s group health insurance plan. Funds from this HRA cannot be used to pay premiums for the primary group health plan it supplements. This restriction prevents a “double tax benefit,” where both the HRA contribution and the premium payment receive tax-favored treatment. The HRA is designed to reimburse out-of-pocket costs not covered by the group plan, such as deductibles and copayments, and employees must be enrolled in a group plan providing minimum essential coverage. While main group plan premiums are ineligible, a standard HRA can often reimburse premiums for COBRA, long-term care insurance, or specific disease policies.

The Individual Coverage HRA (ICHRA) Exception

An exception is the Individual Coverage HRA (ICHRA), an alternative to group insurance that allows employers to provide tax-free reimbursements for individual health insurance premiums. This HRA helps employees purchase their own coverage on the open market, and employers cannot offer the same class of employees both an ICHRA and a traditional group plan. To use ICHRA funds, an employee and their dependents must be enrolled in individual health insurance that meets minimum essential coverage standards for each month they receive a reimbursement. There are no federal limits on employer contributions, giving companies flexibility. Eligible premiums include those for major medical individual plans and Medicare Parts A, B, C, or D, but not for a spouse’s employer-sponsored group plan or short-term insurance.

The Qualified Small Employer HRA (QSEHRA) Exception

Another exception is the Qualified Small Employer HRA (QSEHRA), for employers with fewer than 50 full-time equivalent employees who do not offer a group health plan. A QSEHRA allows these small businesses to reimburse employees tax-free for health insurance premiums and other qualified medical expenses. To receive tax-free reimbursements, the employee must be covered by a health plan that provides minimum essential coverage. Unlike an ICHRA, a QSEHRA has annual contribution limits set by the IRS; for 2025, the maximum reimbursement is $6,350 for an individual and $12,800 for a family. If a spouse’s group plan premiums are paid with pre-tax dollars, QSEHRA reimbursements for those premiums may be taxable, and employers must provide written notice of the benefit amount 90 days before the plan year begins.

The Reimbursement Process

If an HRA allows premium reimbursement, the employee first pays the premium out-of-pocket. Next, the employee must gather documentation to prove the expense for IRS compliance. Required proof includes a receipt, invoice, or Explanation of Benefits (EOB) from the insurer that shows the provider, coverage period, premium amount, and the name of the person covered. For ongoing monthly premiums, some administrators allow a one-time submission of proof for automatic monthly reimbursements. The employee then submits a claim to the plan administrator, and once approved, the tax-free reimbursement is issued via direct deposit or a paycheck, often within a few weeks.