Which HRA Is Right for You? 2026 Guide for Employers

TL;DR

Employers have five main types of Health Reimbursement Arrangements to choose from: ICHRA, QSEHRA, GCHRA, EBHRA, and niche options like Retiree HRAs. The right HRA depends on your company size, whether you offer group insurance, and how much flexibility you need. This guide defines each type, compares them side by side with 2026 IRS limits, and walks through real scenarios so you can pick the one that fits your business.

What Is an HRA?

A Health Reimbursement Arrangement is an employer-funded, tax-advantaged benefit that reimburses employees for qualified medical expenses. It’s not a bank account like an HSA, and it’s not an insurance plan. It’s a reimbursement mechanism: employers set an allowance using pre-tax dollars, and employees submit eligible expenses to get paid back.

The tax treatment is straightforward. Employer contributions are tax-deductible for the business and tax-free for the employee (when conditions are met). There are no rate hikes or participation minimums like you’d find with group insurance.

HRAs fall into two categories, and understanding this split is the fastest way to figure out which HRA is right for you:

If you’re weighing whether group insurance or individual insurance makes more sense for your company, that decision will point you toward the right HRA category before you even compare specific types.

The Five Main Types of HRA

Individual Coverage HRA (ICHRA)

The ICHRA is the most flexible HRA available. Any employer, regardless of size, can offer one. There is no IRS cap on contributions, so you set whatever monthly allowance makes sense for your budget. The catch: employees must carry individual health insurance coverage or Medicare to participate.

Key rules:

Best for: Growing businesses, multi-state or remote teams, companies replacing group plans, ALEs wanting a defined-contribution approach, and any employer that wants to set different allowances by role or location.

Qualified Small Employer HRA (QSEHRA)

The QSEHRA was designed specifically for small employers with fewer than 50 full-time employees. It’s simpler than an ICHRA but more restrictive.

Key rules:

Best for: Very small companies (under 50), employers with tight budgets who want predictable costs, and teams that prefer simple, uniform benefits. If you’re building a benefits strategy for a company under 50 employees, the QSEHRA is often the starting point.

Group Coverage HRA (GCHRA / Integrated HRA)

A GCHRA works alongside a traditional group health plan, typically a high-deductible health plan (HDHP). It helps employees cover out-of-pocket costs like deductibles, copays, and coinsurance.

Key rules:

Best for: Employers keeping their group plan who want to soften the blow of high deductibles for employees.

Excepted Benefit HRA (EBHRA)

The EBHRA is a small supplemental benefit offered alongside a group health plan. Unlike the GCHRA, employees don’t have to be enrolled in the group plan to use it.

Key rules:

Best for: Employers that offer qualifying group coverage and want a limited supplemental benefit for eligible medical expenses or permitted excepted-benefit and continuation premiums.

Other HRA Types: Retiree HRA and Dental/Vision HRA

Two niche types round out the HRA universe:

Most employers evaluating which HRA is right for them won’t need either of these. They exist for specific situations and are mentioned here for completeness.

HRA Comparison Table: All Four Primary Types at a Glance

This table is the fastest way to narrow your options. If you don’t offer group insurance and don’t plan to, you’re choosing between ICHRA and QSEHRA. If you have a group plan and want to supplement it, you’re choosing between GCHRA and EBHRA.

How to Choose: Which HRA Is Right for Your Situation?

Rather than wading through regulations, match your situation to a scenario below.

Scenario A: Under 50 employees, no group plan, tight budget

Best fit: QSEHRA. Capped contributions mean predictable costs. Simple, uniform terms mean minimal administration. And because QSEHRA only requires MEC (not individual coverage specifically), employees on a spouse’s employer plan can still participate.

Scenario B: Under 50 employees, want different allowances by role or location

Best fit: ICHRA. The QSEHRA requires identical terms for everyone. If you need to offer a higher allowance to senior engineers than to part-time staff, or different amounts by city (because health insurance in San Francisco costs more than in Omaha), only the ICHRA gives you that flexibility.

Scenario C: Growing startup, approaching 50 employees

Best fit: ICHRA. Once you cross the 50 FTE threshold, you become an ALE and the QSEHRA is no longer available to you. Starting with an ICHRA means you won’t have to switch benefit structures mid-growth. The ICHRA scales seamlessly across the ALE threshold, and affordable ICHRA solutions exist specifically for teams under 50.

Scenario D: Any size, keeping group plan, want to help with deductibles

Best fit: GCHRA. You supplement your existing group coverage with an uncapped allowance that covers out-of-pocket costs. Employees stay on the group plan and get extra help with deductibles and coinsurance.

Scenario E: Any size, have group plan, want a small supplemental benefit

Best fit: EBHRA. The 2026 amount newly made available is capped at $2,200. An EBHRA may reimburse eligible medical expenses and permitted excepted-benefit or continuation premiums under its terms. Employees need not enroll in the employer’s group plan, although qualifying group coverage must be offered.

Scenario F: Multi-state or fully remote workforce

Best fit: ICHRA. Group plans are state-specific and painful to manage across multiple locations. With an ICHRA, each employee picks a plan from their local individual market. You set the allowance, and the geography problem disappears.

Not sure which scenario fits? Schedule a free consultation to talk through your specific situation with a benefits specialist.

Common Confusion Points Employers Miss

The coverage eligibility gap between QSEHRA and ICHRA

This is the single most important practical distinction for small employers, and it’s the one that practitioners say gets buried most often. Here’s the difference:

For a 12-person company where four employees are already on a spouse’s plan, this distinction matters enormously. Practitioners at Salusion (an ICHRA administrator) have noted that both plan types work almost identically from a setup standpoint, but the type of insurance an employee has determines whether they can participate. This is the number one confusion point most employers miss.

The Premium Tax Credit trap

Employees offered an affordable ICHRA lose access to marketplace premium tax credits (PTCs). For lower-income employees, those subsidies can be worth thousands of dollars per year.

Some small employers (under 50, not subject to the ACA employer mandate) intentionally design a modest ICHRA allowance that doesn’t meet affordability thresholds. This lets employees opt out of the ICHRA and claim PTCs instead, without costing the employer anything extra. It’s a legitimate strategy, but it requires understanding how ICHRA affordability rules work.

Pairing rules: what goes with what

This trips up employers constantly:

Employees shopping for plans on their own

With stand-alone HRAs (ICHRA and QSEHRA), employees buy their own coverage on the individual market. For many, this is their first time shopping for health insurance outside of a group plan. Practitioners and HR managers consistently report that this transition creates friction. Employees may feel overwhelmed or frustrated, especially if they’ve never used a public or private exchange.

This is a big reason why employers working with a third-party administrator tend to have smoother rollouts. As one OnPay practitioner put it, most employers choose a third-party administrator to take care of the heavy lifting and educate employees on how the HRA works. If you’re curious whether your team needs that support, here’s a deeper look at whether you need a third-party HRA administrator.

HRA Adoption Trends Worth Knowing

The HRA market is not standing still. ICHRA adoption has grown by more than 1,000% since 2020, according to the HRA Council. From 2024 to 2025 alone, ICHRA adoption rose 34% among employers with 50 or more full-time employees, and small business ICHRA adoption jumped 52% among HRA Council Founding Members.

About 450,000 U.S. employees and their dependents were offered an ICHRA or QSEHRA for the 2025 plan year, though the HRA Council notes that figure is likely a floor, with the actual market potentially reaching one million people or more.

A few other data points that paint the picture:

Meanwhile, the share of small businesses offering health insurance has dropped from about 47% in 2000 to roughly 30% in 2023, according to KFF employer survey data. HRAs, particularly ICHRAs, are filling that gap. For a broader look at where these trends are heading, see this analysis of the future of employer-sponsored health benefits.

Legislative momentum supports this trajectory. The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, introduced several changes affecting HSAs and health benefits. Congress also proposed codifying the ICHRA as the “CHOICE Arrangement” in the 2025 Budget Reconciliation Bill. While that specific provision didn’t make it into the final enacted bill, the legislative interest signals that ICHRAs have bipartisan staying power.

Your Next Step

Figuring out which HRA is right for you comes down to three questions: Do you offer group insurance? How many employees do you have? And how much flexibility do you need in structuring allowances?

For most small and mid-size employers without group coverage, the answer lands on ICHRA or QSEHRA. For those keeping a group plan, it’s GCHRA or EBHRA. The comparison table and scenarios above should get you 80% of the way to a decision.

If you’re leaning toward ICHRA, SimplyHRA’s platform handles plan setup, employee classes, reimbursements, compliance, and payroll-ready data export in one place, at a flat $29 per employee per month. Schedule a demo to see how it works, or visit the employer page for a full overview.

Frequently Asked Questions

Can I offer an ICHRA and a group health plan at the same time?

Yes, but not to the same employee class. You could offer group insurance to full-time salaried employees and an ICHRA to part-time or hourly workers. Employees should never have a direct choice between the two.

What’s the difference between ICHRA and QSEHRA eligibility requirements?

QSEHRA requires minimum essential coverage (MEC), which includes a spouse’s employer plan, Medicaid, and Medicare. ICHRA specifically requires individual health insurance or Medicare. Employees covered through a spouse’s group plan qualify for QSEHRA but not ICHRA.

What are the 2026 HRA contribution limits?

QSEHRA: $6,450 for self-only, $13,100 for family. EBHRA: $2,200 per employee. ICHRA and GCHRA have no IRS-imposed contribution caps.

Do employees lose marketplace subsidies if I offer an ICHRA?

If the ICHRA is considered affordable under ACA rules, employees cannot claim premium tax credits, even if they opt out. For 2026, the applicable affordability percentage is 9.96% of household income. If the ICHRA is unaffordable, an employee who opts out may qualify for premium tax credits if the other eligibility requirements are met. This is particularly relevant for employers under 50 employees who are not subject to ACA employer mandate penalties.

Can I offer a QSEHRA alongside an FSA?

No. The IRS does not allow employers to offer a QSEHRA and a flexible spending account at the same time.

Which HRA is right for a small business with 15 employees?

It depends on your goals. If you want uniform, simple benefits with predictable costs, QSEHRA works well. If you need to vary allowances by role, location, or employment status, ICHRA is the better fit. Both are stand-alone options that don’t require group insurance.

Does setting up an ICHRA trigger a special enrollment period?

Yes. When a company enrolls in an ICHRA, employees become eligible for special enrollment, meaning they can shop for a major medical plan on the individual market outside of the standard open enrollment window.

Why do most employers use a third-party administrator for HRAs?

Compliance requirements (ACA affordability for ALEs, MEC verification, W-2 reporting for QSEHRA, ERISA/COBRA obligations) create administrative burden that grows with team size. A third-party administrator handles documentation, employee education, expense review, and reimbursement processing, reducing the risk of errors and regulatory penalties.