An extra reimbursement account on top of the group plan, without the cost of a richer plan.
An excepted benefit HRA lets an employer give employees a set dollar amount each year toward deductibles, copays and dental, vision and COBRA premiums. It sits alongside a group health plan rather than replacing it, which makes it one of the few ways to add real value to a plan without re-marketing it.
It is an add-on, and the rules say so.
The excepted-benefit label is what keeps this account out of most Affordable Care Act requirements. It also sets the limits.
It Needs a Group Plan Underneath
An EBHRA can be offered only to employees who are also offered a traditional group health plan, one that is not itself an excepted benefit. Employees do not have to enroll in that plan to use the account. It cannot stand in for group coverage, which is the job of an individual coverage HRA.
A Yearly Dollar Cap
The IRS sets a maximum amount an employer can make available under an EBHRA each year, and indexes it. The employer chooses an amount at or below the cap, so the account can be sized to what the budget supports.
What It Can Reimburse
Out-of-pocket medical, dental and vision costs, and premiums for COBRA, short-term limited-duration insurance and excepted benefits such as dental and vision. It cannot reimburse premiums for the employer’s own group health plan or for individual major medical coverage.
Offered on Uniform Terms
The amount has to be available on the same terms to all similarly situated employees. Different amounts by job class can work if the classes are legitimate, but not by individual. Because an HRA is self-insured, the nondiscrimination rules in Section 105(h) also apply.
What It Does for a Plan Design
Pairing an EBHRA with a higher-deductible plan lets the employer cover part of the deductible only for the people who use care, instead of paying for a richer plan for everyone. Employees see a smaller bill at the pharmacy or the specialist, and the employer’s cost is capped.
What It Needs to Run
A written plan document, the required notices, a claims process with substantiation, and a view of whether Form 5500 applies. The account is cheap to offer and easy to set up wrong, which is the part we handle.
An EBHRA is not an ICHRA or a QSEHRA.
EBHRA
Added to a group plan. Capped each year. Cannot pay for the group plan’s premium or for individual major medical coverage.
ICHRA
Replaces the group plan. Employees buy their own coverage and the employer reimburses it, with no dollar cap. See ICHRA strategy.
The questions employers ask about EBHRAs.
Six questions that come before the plan document does.
Can we offer an EBHRA without a group health plan?
No. The employer has to offer a traditional group health plan to the same employees. Employees can decline that plan and still use the account, but the plan has to be offered.
Can the account pay our group plan premiums?
No. It can reimburse COBRA premiums and premiums for dental, vision and similar excepted benefits, but not the premium for the employer’s group plan or for individual major medical coverage.
Do we have to offer the same amount to everyone?
The amount has to be available on the same terms to similarly situated employees. Reasonable classes, such as full-time and part-time, can receive different amounts. Choosing amounts person by person cannot.
Does the account roll over?
The plan document decides. Unused amounts can carry forward or expire, and the choice should be made and communicated before the plan year starts.
Is this subject to ERISA?
Generally yes, because it is an employer-sponsored health plan. That means a plan document and notices. Whether an annual Form 5500 is due depends on the number of participants and how the plan is funded.
Why use one instead of a richer plan?
A richer plan raises the premium for everyone every month. An EBHRA spends money only when someone has a cost, and the employer sets the ceiling.
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General information about excepted benefit HRAs, not legal or tax advice. Plan-specific questions belong with your tax adviser or counsel, and we will bring them in.
Related guides.
HRA and FSA Plan Setup
How reimbursement accounts are designed and kept compliant.
ICHRA, QSEHRA and HRA Compared
Which account fits which employer.
HSA and Consumer-Driven Plans
How higher-deductible plans and their accounts work together.
Where the Rules Come From.
The laws and rules named on this page link to the statute or regulation they come from. This is general information, not legal or tax advice, and rules change, so check the current text.
Excepted Benefit HRA Rules (26 C.F.R. 54.9831-1)
The regulation that defines excepted benefits, including the excepted benefit HRA.
Employer Reimbursement of Medical Care (26 U.S.C. 105)
The rule that excludes employer-paid medical reimbursements from income, and the nondiscrimination test for self-insured plans.
Send us your renewal.
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The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents, two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
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