Health Reimbursement Arrangements (HRAs): Overview and Related History

Health Reimbursement Arrangements (HRAs): Overview and Related History

Health Reimbursement Arrangements (HRAs): March 7, 2022
Overview and Related History
Ryan J. Rosso
A health reimbursement arrangement (HRA) is a tax-advantaged arrangement that reimburses
Analyst in Health Care
individuals for qualified health care costs. With some exceptions, qualified health care costs
Financing
generally include amounts that individuals paid out-of-pocket for the following:

 the diagnosis, cure, mitigation, treatment, or prevention of disease and the treatments

affecting any part of the body
 health insurance premiums
 qualified long-term-care services
 menstrual care products
The Internal Revenue Service (IRS) first acknowledged HRAs in 2002 guidance as a health benefit that employers could
offer their employees and former employees (including retirees). Under these initial rules, employees and former employees
could use employer-contributed HRA funds to help cover the costs of health insurance and/or unreimbursed medical care up
to a specified limit. Since then, legislative and regulatory activity regarding HRAs (and private health insurance more
generally) have resulted in new types of HRAs and modified the ways employers may offer this benefit.
As an employer-provided benefit, an individual’s eligibility to receive HRA contributions is tied primarily to whether the
individual works for an employer that offers such a benefit. If an employer offers such a benefit to its employees, the
employer contributes money to an employee’s HRA and then reimburses the individual for any qualified medical expenses he
or she incurs, so long as there is a balance. Employer contributions to an HRA are excluded from an employee’s gross
income and wages (hence are not subject to income or payroll taxes), and distributions from such arrangements for qualified
medical expenses are tax-free. Only employers can contribute to HRAs.
There are five kinds of HRAs:
 group health plan HRAs, which are available to employees of an employer offering this benefit who are
enrolled in a group health plan (e.g., employer-sponsored insurance)
 qualified small employer HRAs (QSEHRAs), which are available to employees of a small employer
providing this benefit who are enrolled in minimum essential coverage (e.g., employer-sponsored
insurance, individual coverage, Medicare, Medicaid)
 individual coverage HRAs (ICHRAs), which are available to employees of an employer offering this
benefit who are enrolled in individual coverage (e.g., coverage not provided through an employer that
individuals directly purchase for themselves and their families)
 excepted benefit HRAs, which are more limited than other HRAs, with the smallest HRA contribution
limit and the most restrictions on the types of premiums that can be reimbursed from the HRA
 retiree-only HRAs, which are available only to retirees of employers offering this benefit
As HRAs, these arrangements have many similar features; however, there are some distinctions among these HRAs. For
example, an individual’s eligibility for an HRA is tied primarily to whether the individual works for an employer that offers
an HRA as a benefit; however, depending on the kind of HRA, the individual also may need to be covered by a particular
type of insurance to be eligible for reimbursement from the HRA.
This report briefly summarizes each kind of HRA, highlighting key aspects regarding eligibility and insurance coverage
requirements, contributions, distributions, and the treatment of unused balances for each arrangement. It also provides a side-
by-side comparison table of the different kinds of HRAs (Table 2). The report concludes with an Appendix that describes
the history of HRAs and contextualizes certain HRA rules.
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Contents
Introduction ..................................................................................................................................... 1
Group Health Plan HRAs ................................................................................................................ 2
Eligibility and Qualifying Insurance ......................................................................................... 3
Contributions ............................................................................................................................. 3
Qualifying Medical Expenses ................................................................................................... 3
Treatment of Unused Balances .................................................................................................. 4
Qualified Small Employer HRAs .................................................................................................... 5
Eligibility and Qualifying Insurance ......................................................................................... 5
Contributions ............................................................................................................................. 6
Qualifying Medical Expenses ................................................................................................... 6
Treatment of Unused Balances .................................................................................................. 7
Individual Coverage HRAs ............................................................................................................. 7
Eligibility and Qualifying Insurance ......................................................................................... 7
Contributions ............................................................................................................................. 9
Qualifying Medical Expenses ................................................................................................... 9
Treatment of Unused Balances ................................................................................................ 10
Excepted Benefit HRAs ................................................................................................................ 10
Eligibility and Qualifying Insurance ....................................................................................... 10
Contributions ............................................................................................................................ 11
Qualifying Medical Expenses .................................................................................................. 11
Treatment of Unused Balances ................................................................................................. 11
Retiree-Only HRAs ....................................................................................................................... 12
Eligibility and Qualifying Insurance ....................................................................................... 12
Contributions ........................................................................................................................... 12
Qualifying Medical Expenses ................................................................................................. 12
Treatment of Unused Balances ................................................................................................ 12

Tables
Table 1. Comparison of Premium Tax Credit Eligibility Between Qualified Small
Employer HRAs (QSEHRAs) and Individual Coverage HRAs (ICHRAs) ................................. 8
Table 2. Comparison of General Rules for Five Types of Health Reimbursement
Arrangements (HRAs), 2022 ...................................................................................................... 13

Appendixes
Appendix. A Brief Legislative and Regulatory History of Health Reimbursement
Arrangements ............................................................................................................................. 19

Contacts
Author Information ........................................................................................................................ 25
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Health Reimbursement Arrangements (HRAs): Overview and Related History

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Health Reimbursement Arrangements (HRAs): Overview and Related History

Introduction
Health reimbursement arrangements (HRAs) are one type of tax-advantaged arrangement that
individuals can use to cover the cost of qualified health care costs, including medical expenses
not otherwise reimbursed by health insurance coverage and, in some cases, health insurance
premiums.1
The Internal Revenue Service (IRS) first acknowledged HRAs in guidance issued in 2002 as a
health benefit that employers could offer their employees and former employees (including
retirees). Under these initial rules, employees and former employees could use employer-
contributed HRA funds to help cover the costs of health insurance and/or unreimbursed medical
care up to a specified limit. Since then, legislative and regulatory activity regarding HRAs (and
private health insurance more generally) has resulted in new types of HRAs and modified the
ways employers may offer this benefit to their employees.
Since HRAs are an employer-established health benefit, an individual’s eligibility to receive HRA
contributions is tied primarily to whether the individual works for an employer that offers an
HRA.2 If an employer offers such benefit to its employees, the employer contributes money to the
employee’s HRA and then reimburses the individual for any qualified medical expenses he or she
incurs, so long as there is a balance.3
Employer contributions to an HRA are excluded from an employee’s gross income and wages
(hence are not subject to income or payroll taxes).4 Distributions from such arrangements for
qualified medical expenses are tax-free.
This report discusses five kinds of health reimbursement arrangements (HRAs), listed below in
the order they are discussed in the report:

1 Health savings accounts (HSAs) and flexible spending arrangements (FSAs) are two other types of tax-advantaged
accounts or arrangements that can be used to pay for unreimbursed medical expenses. Health reimbursement
arrangements (HRAs) are similar to FSAs in that eligibility for both arrangements is tied to whether an individual’s
employer offers the account as a benefit, though HRAs are distinct from FSAs in that HRAs can be funded only by
employers. Employees usually fund FSAs, and employers may make additional contributions. In contrast, HSAs are
distinct from HRAs in that HSAs are not necessarily provided through employers (although employers can incorporate
HSAs as part of a benefits package). Relatedly, HSA funds belong to the individual and stay with the individual if he or
she leaves the employer, which generally is not the case for HRAs. When an individual with an HRA leaves his or her
employer, the HRA funds stay with the employer unless the employer provides otherwise or the individual accesses the
HRA under applicable Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA; P.L. 99-272) continuation
coverage requirements. Also in contrast to HRAs, HSA funds may be invested. For an overview and further
comparisons between HSAs, FSAs, and HRAs, see CRS Report R46782, A Comparison of Tax-Advantaged Accounts
for Health Care Expenses.
2 Self-employed individuals are not eligible for HRAs. Internal Revenue Service (IRS), “Health Reimbursement
Arrangements,” Notice 2002-45, at https://www.irs.gov/pub/irs-drop/n-02-45.pdf (hereinafter, IRS Notice 2002-45).
3 Employers need not actually contribute to HRAs until employees seek reimbursement from the HRAs; the
arrangements may be simply notional. To facilitate easy reading, this report often uses the term contribution also to
refer to amounts that employers make available to employees for reimbursement under the terms of the arrangement.
The HRA amount made available to individuals also is often referred to as the reimbursement limit. U.S. Government
Accountability Office (GAO), Consumer Directed Health Plans: Health Status, Spending, and Utilization of Enrollees
in Plans Based on Health Reimbursement Arrangements, GAO-10-616, July 2010, p. 7, at https://www.gao.gov/assets/
gao-10-616.pdf.
4 HRA contributions are exempt from Social Security, Medicare, and federal unemployment employment taxes, with
limited exceptions. See treatment of accident and health benefits in IRS, Publication 15-B: Employer’s Tax Guide to
Fringe Benefits, January 31, 2022, at https://www.irs.gov/pub/irs-pdf/p15b.pdf.
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 group health plan HRAs
 qualified small employer HRAs (QSEHRAs)
 individual coverage HRAs (ICHRAs)
 excepted benefit HRAs
 retiree-only HRAs
As HRAs, these arrangements have many similar features. For example, all HRAs can be funded
only with employer contributions and such amounts are not included as employee wage income.
In addition, all reimbursements are tax-free if they are used for the qualifying medical expenses
of the employee or the employee’s spouse, dependents, and children under the age of 27.5
However, there are some distinctions between each kind of HRA. For example, depending on the
kind of HRA, an individual may need to be covered by a particular type of insurance to be
eligible for reimbursement from the HRA.
This report briefly summarizes each kind of HRA, highlighting key aspects regarding eligibility,
contributions, distributions, and the treatment of unused balances. The first three HRAs discussed
generally require account holders to be enrolled in a particular type of health insurance policy.
These three HRAs are chronologically ordered by the date of establishment. The next two HRAs
discussed address different circumstances that do not require account holders to be enrolled in a
particular type of health insurance policy.
The report also provides a side-by-side comparison table of the different kinds of HRAs (Table
2). Additionally, because understanding the development of HRAs helps to highlight differences
among the types of HRAs, it concludes with an Appendix that describes the legislative and
regulatory history of HRAs and contextualizes certain HRA rules.
Group Health Plan HRAs
In general, group health plan HRAs require employees to be enrolled in a group health plan (e.g.,
employer-sponsored insurance) to receive contributions to and reimbursement from their HRAs.
This type of HRA was not established in statute but was first acknowledged by the Internal
Revenue Service (IRS) in 2002.6 As one of the earliest designated types of HRAs, group health
plan HRAs initially were referred to simply as HRAs, a naming convention that remains in
colloquial use. (This report uses the term group health plan HRAs to prevent confusion when
discussing HRAs generally.)

5 In this context, the term dependent includes all dependents that the HRA holder claims on his or her tax return and
any person the HRA holder could have claimed as a dependent on his or her tax return, except that (1) the person filed a
joint return, (2) the person had a gross income of $4,400 or more (for tax year 2022), or (3) the HRA holder could have
been claimed as a dependent on someone else’s return. IRS, Health Savings Accounts and Other Tax-Favored Health
Plans, IRS Publication 969, February 11, 2021, p. 18, at https://www.irs.gov/pub/irs-pdf/p969.pdf (hereinafter, IRS
Publication 969). Gross income amount for 2022 was published in IRS, “26 CFR 601.602: Tax Forms and
Instructions,” IRS Revenue Procedure 2021-45, at https://www.irs.gov/pub/irs-drop/rp-21-45.pdf (hereinafter, IRS
Revenue Procedure 2021-45).
6 IRS Notice 2002-45; IRS Revenue Ruling 2002-41.
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Eligibility and Qualifying Insurance
Group health plan HRAs generally are available to current and former employees whose
employers offer this benefit. As implied by the name, employees must be enrolled in a group
health plan (e.g., employer-sponsored insurance) to be eligible for a group health plan HRA.7
If an employer offers a group health plan HRA to its employees, the employer also must offer
employer-sponsored coverage. Employers often offer group health plan HRAs alongside high-
deductible health plans (HDHPs), though employers are not required to do so.8 Eligibility for a
group health plan HRA is not tied to HDHPs specifically; the group health plan in which an
individual must be enrolled to be eligible for this type of HRA does not need to satisfy any cost-
sharing requirements (e.g., to have a high enough deductible).
In addition, an individual is not required to be enrolled in his or her own employer’s coverage to
be eligible for a group health plan HRA. For example, if permitted by the individual’s employer,
an employee could receive group health plan HRA contributions from his or her employer if the
individual were simultaneously enrolled in employer-sponsored coverage offered by his or her
spouse’s employer.9
Contributions
There is no federal limit on the amount employers may contribute to an employee’s group health
plan HRA. When setting up the benefit, employers must establish a maximum HRA amount that
would be made available to individuals, sometimes referred to by the IRS as a reimbursement
limit.10 The employer also would specify the reimbursement limit period. For example, an
employer may specify that the reimbursement limit applies for a calendar year.
Qualifying Medical Expenses
Group health plan HRAs must be used for unreimbursed payments of qualifying medical
expenses, including items within the definition of medical care under Internal Revenue Code
(IRC) Section 213(d) and menstrual care products.11 Although health insurance premiums
generally are included as a qualifying medical expense under IRC Section 213(d), group health
plan HRAs cannot reimburse individual coverage premiums.12 Employers offering group health
plan HRAs may further restrict the types of medical and health services eligible for
reimbursement.

7 More specifically, employees must be enrolled in a group health plan that satisfies certain federal private health
insurance requirements to be eligible for the group health plan HRA. For a description of the federal requirements that
the group health plan must satisfy, see Appendix.
8 Gary Claxton et al., 2021 Employer Health Benefits Survey, Kaiser Family Foundation, November 10, 2021, p. 124, at
https://files.kff.org/attachment/Report-Employer-Health-Benefits-2021-Annual-Survey.pdf.
9 Department of Labor (DOL), Employee Benefits Security Administration (EBSA), FAQs About Affordable Care Act
Implementation Part 37, January 12, 2017, at https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/
resource-center/faqs/aca-part-37.pdf (hereinafter, DOL, EBSA, FAQs).
10 IRS Notice 2002-45.
11 As used in this report, unreimbursed payments refers to payments made directly by an individual for medical care
that do not get reimbursed (e.g., by the individual’s insurance plan). See “Qualifying Medical Expenses Under IRC
Section 213(d)” text box in this report.
12 IRS, Q&A 2 in “Further Guidance on the Application of the Group Health Plan Market Reform Provisions of the
Affordable Care Act to Employer-Provided Health Coverage and on Certain Other Affordable Care Act Provisions,”
IRS Notice 2015-87, at https://www.irs.gov/pub/irs-drop/n-15-87.pdf (hereinafter, IRS Notice 2015-87).
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Qualifying Medical Expenses Under IRC Section 213(d)
All types of health reimbursement arrangements (HRAs) allow tax-advantaged reimbursements for qualified
medical expenses. The definition of qualified medical expenses for HRAs is based on the definition of medical care
that is used for the medical and dental expenses itemized deduction; this definition is at Internal Revenue Code
(IRC) Section 213(d). Put simply, items that would qualify for the medical and dental expenses itemized deduction
generally could be considered HRA-qualifying medical expenses, though certain HRA-specific rules may prevent
portions of the IRC Section 213(d) definition from being considered a qualified medical expense for a particular
HRA type.
The definition of medical care at IRC Section 213(d) does not provide an exhaustive list of all items that are
considered medical care; rather, it broadly defines the term medical care to include amounts paid for “the
diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or
function of the body.” It also includes certain transportation and lodging expenditures, amounts paid for health
insurance and qualified long-term-care costs, and limited amounts of long-term-care insurance premiums. As
interpreted by the Internal Revenue Service (IRS) and courts, costs for ambulances, body scans, and chiropractors
would fall within the definition of medical care, whereas, in general, personal-use expenses (e.g., toothpaste) and
general health expenses (e.g., weight-loss programs) would not.
The IRS-issued Publication 502 provides more detailed information about what generally is and is not considered
medical care under the medical and dental expenses itemized deduction. As such, Publication 502 also indicates
which items generally are considered qualifying medical expenses for HRA purposes, though it does not
incorporate any HRA rules. Furthermore, even though Publication 502 indicates that over-the-counter medicines
are not considered medical care for the medical and dental expenses itemized deduction, such medicines are
considered HRA-qualifying medical expenses.
Sources: IRC §213; IRS, “Medical and Dental Expenses,” Publication 502, January 11, 2022, at
https://www.irs.gov/pub/irs-pdf/p502.pdf; and IRS, Health Savings Accounts and Other Tax-Favored Health Plans,
IRS Publication 969, February 11, 2021, p. 18, at https://www.irs.gov/pub/irs-pdf/p969.pdf.
Note: Although IRS Publication 502 includes a list of items that are considered medical care, the list does not
include all possible medical expenses.
Group health plan HRA funds can be used only for qualifying medical expenses incurred by the
employee (current and former), the employee’s spouse and dependents (including those of
deceased employees), and the employee’s children younger than 27 years of age at the end of the
year.13 To use a group health plan HRA to pay for the medical expenses of an employee or an
employee’s spouse, dependents, and children younger than 27 years of age, these individuals also
must be enrolled in a group health plan.14
Treatment of Unused Balances
Unused group health plan HRA balances may be carried forward to increase the HRA holder’s
reimbursement limit in subsequent periods, though employers may limit the aggregate
carryovers.15
Employers may, but are not required to, set up group health plan HRAs in such a way that
employees who cease to be covered under a group health plan retain access to their remaining

13 See footnote 5.
14 The employee, the employee’s spouse, and the employee’s dependents need not all be enrolled in the same group
health plan. For example, the employee may be enrolled in the group health plan offered by his or her employer and the
employee’s spouse and dependents may be enrolled in a group health plan offered by the spouse’s employer. IRS
Notice 2015-87 and DOL, EBSA, FAQs.
15 IRS Notice 2002-45 and IRS, Department of the Treasury, EBSA, DOL, Department of Health and Human Services
(HHS), Centers for Medicare & Medicaid Services, “Health Reimbursement Arrangements and Other Account-Based
Group Health Plans,” 84 Federal Register 28888, July 20, 2019 (hereinafter, 84 Federal Register 28888).
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Health Reimbursement Arrangements (HRAs): Overview and Related History

HRA balances that were credited to the employee when he or she was enrolled in a group health
plan.16
If an employee separates from his or her employer, the employee either forfeits his or her group
health plan HRA balances or must be allowed to permanently opt out and waive future
reimbursement from the HRA.17 Former employees may retain access to their group health plan
HRAs if they do not opt out of the HRA and the employer has structured the benefit to be
available to former employees. Former employees also may be able to access the group health
plan HRA under Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA; P.L. 99-
272) continuation coverage requirements.18
Qualified Small Employer HRAs
QSEHRAs are a type of HRA that only certain small employers can provide. Employers
providing this benefit can provide only a QSEHRA as a health benefit; they cannot also offer
health insurance coverage. Employees receiving this benefit must enroll in minimum essential
coverage and may do so by using QSEHRA funds to help cover premium costs. Employees can
then use any remaining QSEHRA balances to cover other qualified medical expenses, if the
employees remain enrolled in appropriate coverage.
Congress established QSEHRAs in the 21st Century Cures Act (P.L. 114-255) in 2016.19
Eligibility and Qualifying Insurance
QSEHRAs generally are provided to all current employees of small employers that provide this
benefit.20 Employers are generally considered small—and hence eligible to provide QSEHRAs—
if they have fewer than 50 full-time-equivalent employees and do not offer health insurance to
any of their employees.21
To receive the tax benefits associated with QSEHRAs, employees must be enrolled in minimum
essential coverage.22 Most types of comprehensive coverage are considered minimum essential

16 IRS, Q&A 5 in “Application of Market Reform and Other Provisions of the Affordable Care Act to HRAs, Health
FSAs, and Certain Other Employer Healthcare Arrangements,” IRS Notice 2013-54, at https://www.irs.gov/pub/irs-
drop/n-13-54.pdf (hereinafter, IRS Notice 2013-54).
17 The opt-out feature is because the benefits provided by the HRA generally would preclude an individual from being
able to claim a premium tax credit. IRS Notice 2013-54, Q&A 4.
18 For more information on COBRA continuation coverage, see CRS Report R40142, Health Insurance Continuation
Coverage Under COBRA.
19 Section 18001 of P.L. 114-255.
20 Unlike other health benefits, employees cannot waive qualified small employer HRA (QSEHRA) participation.
Employers must provide a QSEHRA to all eligible employees, though the terms of the QSEHRA may exclude certain
types of employees. Specifically, employees with less than 90 days of service, employees younger than the age of 25,
part-time or seasonal employees, employees covered by a collective bargaining unit where accident and health benefits
were the subject of good-faith bargaining, and nonresident alien employees with no earned income from sources within
the United States. 26 U.S.C. §105(h)(3)(B), as referenced by 26 U.S.C. §9831(d)(3)(A). IRS, “Qualified Small
Employer Health Reimbursement Arrangements,” IRS Notice 2017-67, at https://www.irs.gov/pub/irs-drop/n-17-
67.pdf (hereinafter, IRS Notice 2017-67).
21 More specifically, employers not subject to the employer shared responsibility provisions are considered small
employers for QSEHRA purposes. 26 U.S.C. §9831(d)(3)(B). For more information on the employer shared
responsibility provisions, see CRS Report R45455, The Affordable Care Act’s (ACA’s) Employer Shared Responsibility
Provisions (ESRP).
22 For information on the types of plans in which an individual with a QSEHRA can enroll, see IRS, “Appendix A:
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coverage, including public coverage, such as coverage under programs sponsored by the federal
government (e.g., Medicaid, Medicare) and private insurance (e.g., a spouse’s employer-
sponsored insurance, individual insurance). The qualifying insurance does not need to satisfy any
arrangement-specific cost-sharing requirements (e.g., have a high enough deductible).
Unlike ICHRAs (discussed below), employees with a QSEHRA who enroll in individual
coverage through a Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended)
individual market exchange still may qualify for a premium tax credit if the QSEHRA is not
considered affordable (Table 1).23 Affordability is determined using a formula that incorporates
the premium of the second-lowest-cost silver plan that is available to the individual on the
exchange, the individual’s annual household income, and the amount of the QSEHRA
contribution.24 If eligible, the amount of premium tax credit available to an individual would be
determined in accordance with the standard premium tax credit formula but would be reduced to
account for the amount of the QSEHRA contribution that the individual receives.
Contributions
QSEHRAs are subject to an annual employer contribution limit. In 2022, reimbursements from a
QSEHRA cannot exceed $5,450 per year for self-only coverage or $11,050 per year for coverage
that includes family members.25 These dollar amounts are prorated for part-year employees and
part-year QSEHRAs and are indexed for inflation in future years. Employers may choose to
provide a QSEHRA with a reimbursement limit below these specified amounts.
Employers must provide the QSEHRA “on the same terms” to all employees. Similar to ICHRAs,
employers may vary QSEHRA amounts according to employee age and family size.26
Qualifying Medical Expenses
QSEHRAs generally must be used for unreimbursed payments of qualifying medical expenses, a
category that includes items within the definition of medical care under IRC Section 213(d) and
menstrual care products.27 Employers offering QSEHRAs may further restrict the types of
medical and health services that are eligible for reimbursement by QSEHRA funds.

Types of Minimum Essential Coverage,” in IRS Notice 2017-67.
23 Premium tax credits are financial assistance that reduces the amount individuals pay for health insurance coverage
through an individual market exchange. For more information on the premium tax credit, see CRS Report R44425,
Health Insurance Premium Tax Credit and Cost-Sharing Reductions.
24 A QSEHRA is considered affordable if the monthly premium amount that the employee pays (after accounting for
any monthly QSEHRA amounts) for self-only coverage for the second-lowest-cost silver plan is less than 9.61% of
one-twelfth of the employee’s household income in 2022. For this exercise, the monthly QSEHRA amount is the
annual contribution amount that is available to the employee divided by 12, unless the employer provides different
QSEHRA amounts to those with self-only and family coverage; in that case, the monthly QSEHRA amount is the
annual self-only QSEHRA amount divided by 12. The percentage is indexed for inflation in future years. The term
silver plan refers to one of the four categories of health insurance plans offered on the ACA individual market
exchange. 26 U.S.C. §36B(c)(4)(C); IRS Notice 2017-67; and IRS, Revenue Procedure 2021-36, at
https://www.irs.gov/irb/2021-35_IRB#REV-PROC-2021-36.
25 IRS Revenue Procedure 2021-45.
26 Contribution amounts may vary in accordance with the premium variation for an individual market health insurance
policy based on age or the number of family members. The individual market health insurance policy that the employer
may rely on to determine the amount of permitted variance must be minimum essential coverage and must be available
to at least one eligible employee. 26 U.S.C. §9831(d)(2)(C) and IRS Notice 2017-67.
27 QSEHRA amounts used to reimburse pretax premiums of a health insurance plan provided by the employer of the
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QSEHRA funds can be used only for qualifying medical expenses incurred by the employee, the
employee’s spouse and dependents (including those of deceased employees), and the employee’s
children younger than 27 years of age at the end of the year.28 To use QSEHRA funds to
reimburse the medical expenses of an employee or an employee’s spouse, dependents, and
children younger than 27 years of age, these individuals also must be enrolled in minimum
essential coverage.29
Treatment of Unused Balances
Unused QSEHRA balances may be carried forward in subsequent periods, though employers may
limit aggregate carryovers.30 Carried-over QSEHRA amounts count toward the subsequent year’s
annual contribution limit.31
If an employee ceases to be covered by minimum essential coverage, the QSEHRA cannot
reimburse the employee’s medical expenses.
If an employee separates from his or her employer, QSEHRA balances are forfeited.
Individual Coverage HRAs
In general, employers offer ICHRAs to their employees, who then generally use the ICHRA funds
to purchase individual market health insurance policies (i.e., non-group policies). For example, an
employer could offer this type of HRA to an employee who then receives reimbursement from the
HRA to cover his or her premiums for insurance offered on the ACA individual market exchange.
The employee could use any remaining balances not used for premiums to cover other qualified
medical expenses that he or she incurs while enrolled in individual coverage.
This type of HRA is relatively new. It was established in a final rule issued on June 20, 2019, by
the Departments of Health and Human Services (HHS), Labor (DOL), and the Treasury.32
Eligibility and Qualifying Insurance
ICHRAs generally are available to current and former employees whose employers offer this
benefit. As implied by the name, to be eligible for an ICHRA, employees must be enrolled in an
individual market health insurance policy (i.e., non-group policy) that satisfies certain federal
private health insurance requirements.33 Qualifying insurance includes individual coverage on and
off the ACA individual health insurance exchanges, catastrophic plans, transitional plans (or
grandmothered plans), and fully insured student health insurance coverage.34 The individual

employee’s spouse are taxable. IRS Notice 2017-67.
28 See footnote 5.
29 The employee, the employee’s spouse, and the employee’s dependents need not all be enrolled in the same health
plan. IRS Notice 2017-67.
30 IRS Notice 2002-45 and 84 Federal Register 28888.
31 IRS Notice 2017-67.
32 84 Federal Register 28888.
33 For a discussion of these private health insurance requirements, see Appendix.
34 Transitional plans, or grandmothered plans, are individual and small-group market plans that meet certain
requirements and are in states that have continuously opted to exempt them, per federal guidance. Transitional plans are
exempt from some federal requirements. Individual coverage HRAs (ICHRAs) also may be paired with grandfathered
plans. If certain conditions are met, ICHRAs can be paired with Medicare (26 C.F.R. §54.9802-4(e)). For more
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market coverage does not need to satisfy any arrangement-specific cost-sharing requirements
(e.g., have a high enough deductible).
Unlike QSEHRAs, employees with an ICHRA who enroll in individual coverage through an ACA
individual market exchange are ineligible for premium tax credits (Table 1).35 However,
employees may opt out of the ICHRA and, in doing so, may become eligible for a premium tax
credit if the ICHRA is not considered affordable. Affordability is determined based on a formula
that takes into account the premium of the lowest-cost silver plan available to the individual, the
amount of ICHRA contributions, and the individual’s annual income.36
Table 1. Comparison of Premium Tax Credit Eligibility Between Qualified Small
Employer HRAs (QSEHRAs) and Individual Coverage HRAs (ICHRAs)

QSEHRAs
ICHRAs
Premium Tax Credit Eligibility
QSEHRA must be considered
ICHRA must be considered
unaffordable to be eligible.
unaffordable and individual must opt
out of ICHRA to be eligible.
Affordability Determination
Made using the second-lowest-cost
Made using the lowest-cost silver
silver plan on the exchange available plan on the exchange available to
to the employee.
the employee.
HRA Impact on Premium Tax
QSEHRA monthly amount reduces
Employee must choose between
Credit Amount (if eligible)
the premium tax credit amount. For ICHRA amount and premium tax
example, someone who is eligible
credit.
for $500 in premium tax credit and
receives $300 a month in QSEHRA
contributions would receive $200 in
premium tax credit.
Sources: Internal Revenue Service (IRS), “Qualified Small Employer Health Reimbursement Arrangements,” IRS
Notice 2017-67, at https://www.irs.gov/pub/irs-drop/n-17-67.pdf; and IRS, Department of the Treasury,
Employee Benefits Security Administration, Department of Labor; Department of Health and Human Services,
Centers for Medicare & Medicaid Services, “Health Reimbursement Arrangements and Other Account-Based
Group Health Plans,” 84 Federal Register 28888, July 20, 2019.
Notes: QSEHRAs = qualified small employer health reimbursement arrangements; ICHRAs = individual
coverage health reimbursement arrangements. Other factors (e.g., income) also affect premium tax credit
eligibility. For more information on premium tax credits, see CRS Report R44425, Health Insurance Premium Tax
Credit and Cost-Sharing Reductions.
Employees offered an ICHRA do not have the option to choose between this benefit and
employer-sponsored insurance, because employers are not allowed to offer an employee both an

information on grandfathered plans, transitional plans (grandmothered plans), and fully insured student health
insurance coverage, see CRS Report R46003, Applicability of Federal Requirements to Selected Health Coverage
Arrangements.
35 Premium tax credits are financial assistance that reduces the amount individuals pay for health insurance coverage
through an individual market exchange. For more information on the premium tax credit, see CRS Report R44425,
Health Insurance Premium Tax Credit and Cost-Sharing Reductions. 84 Federal Register 28915.
36 An ICHRA is considered affordable if the monthly premium amount that the employee pays (after accounting for
any monthly ICHRA amounts) for self-only coverage for the lowest-cost silver plan is less than 9.61% of one-twelfth
of the employee’s household income in 2022. For this exercise, the monthly ICHRA amount is the annual HRA
contribution amount available to the employee divided by 12, unless the employer provides different ICHRA amounts
to those with self-only and family coverage, in which case, the monthly ICHRA amount is the annual self-only ICHRA
amount divided by 12. The percentage is indexed for inflation in future years. 26 U.S.C. §36B(c)(4)(C) and IRS
Revenue Procedure 2021-36 at https://www.irs.gov/irb/2021-35_IRB#REV-PROC-2021-36.
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ICHRA and any of the following: another group health plan, an excepted benefit HRA, or a
QSEHRA.37
From the employer perspective, employers offering ICHRAs do not need to offer this benefit to
all of their employees. However, if the employer offers the ICHRA to only a subset of its
workforce, the employer must similarly offer the ICHRA to everyone within a specified class of
employees (e.g., full-time employees, part-time employees).38 For example, an employer may
elect to offer full-time employees employer-sponsored insurance and to offer part-time employees
an ICHRA.39
Contributions
There is no federal limit on the amount employers may contribute to an employee’s ICHRA, but
employers must establish a reimbursement limit when setting up the benefit offering.40 The
employer also would specify the reimbursement limit period. For example, an employer may
specify that the reimbursement limit applies for a calendar year.
Employers offering ICHRAs to their employees must offer ICHRAs on the same terms to all
employees within a class of employees. On the same terms refers to both the amount of ICHRA
funding available for reimbursement and the terms and conditions of the benefit.41 However,
employers may vary employee ICHRA amounts according to employee age and family size.42
Qualifying Medical Expenses
ICHRAs generally must be used for unreimbursed payments of qualifying medical expenses, a
category that includes items within the definition of medical care under IRC Section 213(d) and
menstrual care products. Employers offering ICHRAs may further restrict the types of medical
and health services that are eligible for reimbursement by ICHRA funds.
ICHRA funds can be used only for qualifying medical expenses incurred by the employee
(current and former), the employee’s spouse and dependents (including those of deceased
employees), and the employee’s children younger than 27 years of age at the end of the year.43 To
use ICHRA funds to pay for the medical expenses of an employee and an employee’s spouse,

37 Because an employer cannot offer a group health plan to an employee if the employer already is offering the
employee an ICHRA and because an excepted benefit HRA must be offered alongside a (non-HRA) group health plan,
an employee cannot receive an offer of an ICHRA and an excepted benefit HRA. 26 C.F.R. §54.9802-4(c)(2); 84
Federal Register 28902; IRS Notice 2017-67.
38 For a list of allowable classes of employees, see 26 C.F.R. §54.9802-4(d)(2).
39 In instances where an employer offers a group health plan to at least one class of employees and offers an ICHRA to
at least one other class of employees, the employer may be subject to requirements that specify the minimum number of
employees that are allowed to be in the class of employees being offered the ICHRA. 26 C.F.R. §54.9802-4(d)(3).
40 84 Federal Register 28931.
41 84 Federal Register 28904.
42 Specifically, an employer may increase the maximum amount contributed to an employee’s ICHRA as the
employee’s age increases. Such discrepancy cannot exceed 3:1 and generally ties to the premium variance allowed in
the individual market for a person’s age. Additionally, an employer may increase the maximum amount contributed to
an employee’s HRA as the employee’s number of dependents increases. 26 C.F.R. §54.9802-4(c)(3)(iii); 84 Federal
Register 28905. For age-rating restrictions in the individual market, see 42 U.S.C. §300gg.
43 See footnote 5.
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Health Reimbursement Arrangements (HRAs): Overview and Related History

dependents, and children younger than 27 years of age, these individuals also must be enrolled in
an individual health insurance policy.44
Treatment of Unused Balances
ICHRA holders may carry forward unused ICHRA balances to increase his or her HRA limit in
subsequent periods, though employers may limit the aggregate carryovers.45
If an employee ceases to be covered by individual health insurance coverage, the employee must
forfeit the entire balance of his or her HRA.46
If an employee separates from his or her employer, the employee must either forfeit his or her
ICHRA balances or must be allowed to permanently opt out and waive future reimbursement
from the HRA.47 Former employees may retain access to their ICHRAs if they do not opt out of
the HRA and the employer has structured the benefit to be available to former employees. Former
employees also may be able to access the ICHRA under COBRA continuation coverage
requirements.48
Excepted Benefit HRAs
Excepted benefit HRAs are more limited in scope than other HRAs; excepted benefit HRAs have
the lowest annual contribution limit among all HRAs and the most limitations with respect to the
types of premiums that the HRA can reimburse. Unlike for the first three HRAs discussed in this
report, there is no qualifying insurance associated with excepted benefit HRAs. Individuals may
be enrolled in any coverage type (or may be uninsured) and still may receive reimbursement from
an excepted benefit HRA. This type of HRA is also relatively new, having been established in the
same 2019 final rule that established ICHRAs.49
Eligibility and Qualifying Insurance
Excepted benefit HRAs generally are available to current and former employees whose
employers offer this benefit. There is no qualifying insurance associated with excepted benefit
HRAs.
Employers offering an excepted benefit HRA to their employees must offer the benefit alongside
employer-sponsored insurance, though the employee cannot be required to accept the employer-
sponsored insurance in order to receive the excepted benefit HRA.50

44 The employee, the employee’s spouse, and the employee’s dependents need not all be enrolled in the same health
plan. 84 Federal Register 28929.
45 IRS Notice 2002-45 and 84 Federal Register 28888.
46 26 C.F.R. §54.9802-4(c)(1)(ii).
47 The opt-out feature is because the benefits provided by the ICHRA generally would preclude an individual from
being able to claim a premium tax credit. 84 Federal Register 28913-28915.
48 For more information on COBRA continuation coverage, see CRS Report R40142, Health Insurance Continuation
Coverage Under COBRA.
49 84 Federal Register 28888.
50 Ibid., pp. 28933-28934.
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Contributions
Contributions to excepted benefit HRAs are capped at $1,800 for 2022 and indexed to inflation
for future years, though employers may make less than that amount available for
reimbursement.51
Qualifying Medical Expenses
Excepted benefit HRAs generally must be used for unreimbursed payments of qualifying medical
expenses, a category that includes items within the definition of medical care under IRC Section
213(d) and menstrual care products. Although health insurance premiums generally are included
as a qualifying medical expense under IRC Section 213(d), excepted benefit HRAs cannot
reimburse for individual health insurance coverage premiums, group health plan premiums, or
Medicare premiums.52 The only premiums that excepted benefit HRAs can reimburse are those
for health care continuation coverage (e.g., COBRA); coverage that consists solely of excepted
benefits; and generally short-term, limited-duration insurance.53 Employers offering excepted
benefit HRAs may further restrict the types of medical and health services that are eligible for
reimbursement by excepted benefit HRA funds.
Excepted benefit HRA funds can be used only for the qualifying medical expenses incurred by
the employee (current and former), the employee’s spouse and dependents (including those of
deceased employees), and the employee’s children younger than 27 years of age at the end of the
year.54
Treatment of Unused Balances
Excepted benefit HRA holders may carry forward unused balances in subsequent periods, though
employers may limit the aggregate carryovers.55 Unlike for QSEHRAs, carried-over amounts do
not count toward the annual limit.
If an employee separates from his or her employer, the individual may retain access to their
excepted benefit HRA if the employer has structured the benefit to be available to former
employees. Former employees also may be able to access the excepted benefit HRA under
COBRA continuation coverage requirements.

51 26 C.F.R. §54.9831-1(c)(3)(viii)(B) and IRS, “26 C.F.R. 601.602: Tax Forms and Instructions,” Revenue Procedure
2021-25, at https://www.irs.gov/pub/irs-drop/rp-21-25.pdf.
52 Excepted benefits cannot reimburse premiums for individual health insurance coverage or group health plans but
may reimburse individual health insurance coverage or group health plan premiums that consist solely of excepted
benefits. 26 C.F.R. §54.9831-1(c)(3)(viii)(C).
53 In general, health plans in their provision of excepted benefits are exempt from all federal health insurance
requirements. A diverse collection of insurance benefits can be considered excepted benefits, including auto liability
insurance, limited-scope dental and vision benefits, benefits for long-term care, specific disease coverage, and
supplemental Medicare plans (i.e., Medigap plans). If certain conditions are met, the excepted benefit HRA would be
prevented from reimbursing short-term, limited-duration insurance premiums. 26 C.F.R. §54.9831-1(c)(3)(viii)(F).
54 See footnote 5.
55 IRS Notice 2002-45 and 84 Federal Register 28937.
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Retiree-Only HRAs
As implied by the name, retiree-only HRAs are HRAs that are available only to former
employees of employers offering the benefit. There is no qualifying insurance associated with
retiree-only HRAs; individuals may be enrolled in any coverage type (or may be uninsured) and
still have a retiree-only HRA. Although not explicitly referenced, retiree-only HRAs also stem
from the IRS acknowledgment of HRAs in 2002.56
Eligibility and Qualifying Insurance
Retiree-only HRAs generally are available to former employees of an employer that offers this
benefit. There is no qualifying insurance associated with retiree-only HRAs.
Contributions
There is no federal limit on the amount employers may contribute to an individual’s retiree-only
HRA, but employers must establish a reimbursement limit when setting up the benefit offering.57
The employer also would specify the reimbursement limit period. For example, an employer may
specify that the reimbursement limit applies for a calendar year.
Qualifying Medical Expenses
Retiree-only HRAs generally must be used for unreimbursed payments of qualifying medical
expenses, a category that includes items within the definition of medical care under IRC Section
213(d) and menstrual care products. Employers offering retiree-only HRAs may further restrict
the types of medical and health services that are eligible for reimbursement by retiree-only HRA
funds.
Retiree-only HRA funds can be used only for the qualifying medical expenses incurred by the
former employee, the former employee’s spouse and dependents (including those of deceased
employees), and the former employee’s children younger than 27 years of age at the end of the
year.58
Treatment of Unused Balances
Unused retiree-only HRA balances may be carried forward to increase the HRA holder’s limit in
subsequent periods, though employers may limit the aggregate carryovers.
In some instances where an individual loses access to a retiree-only HRA, individuals may be
able to retain access to their retiree-only HRAs through COBRA continuation coverage.59

56 IRS Notice 2002-45; IRS Revenue Ruling 2002-41.
57 IRS Notice 2002-45.
58 See footnote 5.
59 For more information on COBRA continuation coverage, see CRS Report R40142, Health Insurance Continuation
Coverage Under COBRA.
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Table 2. Comparison of General Rules for Five Types of Health Reimbursement Arrangements (HRAs), 2022
Qualified Small
Group Health Plan
Employer HRA
Individual Coverage
Excepted Benefit

HRA
(QSEHRA)
HRA (ICHRA)
HRA
Retiree-Only HRA
Setting Up an HRA
Eligibility
Employees of an
Generally, employees of a Employees of an
Employees of an
Former employees of an
employer that offers this
small employer (typically
employer that offers this
employer that offers this
employer that offers this
benefit. Former
fewer than 50 ful -time or benefit. Former
benefit. Former
benefit to former
employees of an
ful -time-equivalent
employees of an
employees of an
employees.
employer that offers this
workers in the prior
employer that offers this
employer that offers this
Self-employed individuals
benefit to former
year) that offers this
benefit to former
benefit to former
are not eligible.
employees.
benefit.
employees.
employees.
Self-employed individuals
Self-employed individuals
Self-employed individuals
Self-employed individuals
are not eligible.
and former employees
are not eligible.
are not eligible.
are not eligible.
Contributing to an HRAa
Source of Contributions
Employer.
Employer.
Employer.
Employer.
Employer.
Tax Status of
Employer contributions
Employer contributions
Employer contributions
Employer contributions
Employer contributions
Contributions
are not included as
are not included as
are not included as
are not included as
are not included as
employee wage income.
employee wage income.
employee wage income.
employee wage income.
employee wage income.
Annual Contribution
No statutory or
$5,450 for self-only
No statutory or
Individual limit of $1,800
No statutory or
Limits
regulatory limit for
coverage and $11,050 for
regulatory limit for
a year per employer.
regulatory limit for
employer contributions.
family coverage.
employer contributions.
Employers may set lower
employer contributions.
Employers may set lower
limits.
limits.
Annual Cost-of-Living
Not applicable.
Yes; adjustments based
Not applicable.
Yes; adjustments based
Not applicable.
Adjustments for
on the C-CPI-U.b
on the C-CPI-U.b
Contribution Limits

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Qualified Small
Group Health Plan
Employer HRA
Individual Coverage
Excepted Benefit

HRA
(QSEHRA)
HRA (ICHRA)
HRA
Retiree-Only HRA
Distributions from an HRA
When Funds Are
Funds are available as
Funds are available as
Funds are available as
Funds are available as
Funds are available as
Available
they are accrued.
they are accrued.
they are accrued.
they are accrued.
they are accrued.
Length of Time Funds
Employers have
Employers have
Employers have
Employers have
Employers have
Are Available
discretion and may
discretion and may
discretion and may
discretion and may
discretion and may
specify a period of less
specify a period of less
specify a period of less
specify a period of less
specify a period of less
than one year.
than one year.
than one year.
than one year.
than one year.
Tax Status of
Reimbursements are tax-
Reimbursements are tax-
Reimbursements are tax-
Reimbursements are tax-
Reimbursements are tax-
Reimbursements for
free.
free.c
free.
free.
free.
Qualifying Medical
Expenses
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Qualified Small
Group Health Plan
Employer HRA
Individual Coverage
Excepted Benefit

HRA
(QSEHRA)
HRA (ICHRA)
HRA
Retiree-Only HRA
Qualifying Medical
Most unreimbursed
Unreimbursed medical
Unreimbursed medical
Most unreimbursed
Unreimbursed medical
Expenses
medical expenses that fit
expenses that fit within
expenses that fit within
medical expenses that fit
expenses that fit within
within the definition of
the definition of medical
the definition of medical
within the definition of
the definition of medical
medical care listed in IRC
care listed in IRC
care listed in IRC
medical care listed in IRC
care listed in IRC
§213(d), including health
§213(d), including health
§213(d), including health
§213(d), including
§213(d), including health
insurance premiums and
insurance premiums and
insurance premiums and
amounts paid for health
insurance premiums and
amounts paid for long-
amounts paid for long-
amounts paid for long-
care continuation
amounts paid for long-
term-care coverage.
term-care coverage.
term-care coverage.
coverage (e.g., COBRA);
term-care coverage.
Menstrual care products
Menstrual care products
Menstrual care products
generally, coverage
Menstrual care products
and over-the-counter
and over-the-counter
and over-the-counter
consisting solely of
and over-the-counter
medicines are considered
medicines are considered
medicines are considered
excepted benefits; and,
medicines are considered
a qualifying medical
a qualifying medical
a qualifying medical
generally, short-term,
a qualifying medical
expense.
expense.
expense.
limited-duration
expense.
May not be used on
Employers may impose
Employers may impose
insurance.d Menstrual
Employers may impose
individual market
additional limitations on
additional limitations on
care products and over-
additional limitations on
premiums.
what is considered a
what is considered a
the-counter medicines
what is considered a
are considered a
Employers may impose
qualifying medical
qualifying medical
qualifying medical
qualifying medical
additional limitations on
expense.
expense.
expense.
expense.
what is considered a
qualifying medical
May not be used on
expense.
individual market, group
health plan, or Medicare
premiums (unless
premiums are for
coverage that consists
solely of excepted
benefits).
Employers may impose
additional limitations on
what is considered a
qualifying medical
expense.
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Qualified Small
Group Health Plan
Employer HRA
Individual Coverage
Excepted Benefit

HRA
(QSEHRA)
HRA (ICHRA)
HRA
Retiree-Only HRA
Qualifying Medical
Employee (current or
Current employee,
Employee (current or
Employee (current or
Former employee,
Expenses Incurred by
former), employee’s
employee’s spouse and
former), employee’s
former), employee’s
former employee’s
Which Individuals
spouse and dependents
dependents (including
spouse and dependents
spouse and dependents
spouse and dependents
(including those of
those of deceased
(including those of
(including those of
(including those of
deceased employees), and employees), and
deceased employees), and deceased employees), and deceased employees),
employee’s children
employee’s children
employee’s children
employee’s children
and employee’s children
under the age of 27.
under the age of 27.
under the age of 27.
under the age of 27.
under the age of 27.
Qualifying Health
Employee and others
Employee and others
Employee and others
Not applicable.
Not applicable.
Insurance Enrol ment
covered by the HRA
covered by the HRA
covered by the HRA
Necessary for
generally must be
must be enrol ed in
must be enrol ed in
Reimbursement
enrol ed in qualifying
qualifying health
qualifying health
health insurance.
insurance.
insurance.
Employers may set up
group health plan HRAs
in such a way that an
employee who ceases to
be covered under a group
health plan retains access
to HRA balances that
were accrued when
enrol ed in a group health
plan.
Qualifying Health
Any non-HRA group
Any health insurance plan Any individual market
None.
None.
Insurance
health insurance plan that
that is considered
coverage that satisfies
satisfies annual limit and
minimum essential
annual limit and
preventive service
coverage.e
preventive service
requirements.
requirements.
Tax Status of Nonmedical Nonmedical distributions
Nonmedical distributions
Nonmedical distributions
Nonmedical distributions
Nonmedical distributions
Reimbursements
are not permitted.
are not permitted.
are not permitted.
are not permitted.
are not permitted.
CRS-16

Qualified Small
Group Health Plan
Employer HRA
Individual Coverage
Excepted Benefit

HRA
(QSEHRA)
HRA (ICHRA)
HRA
Retiree-Only HRA
Remaining HRA Balances
Carryover of Unused
Unused amounts
Unused amounts
Unused amounts
Unused amounts
Unused amounts
Funds
generally may be carried
generally may be carried
generally may be carried
generally may be carried
generally may be carried
over indefinitely, although over indefinitely, although over indefinitely, although over indefinitely, although over indefinitely, although
employers may limit the
employers may limit the
employers may limit the
employers may limit the
employers may limit the
amount that can be
amount that can be
amount that can be
amount that can be
amount that can be
carried over.
carried over.
carried over.
carried over.
carried over.
Carryover Amounts
Not applicable.
Yes.
Not applicable.
No.
Not applicable.
Count Toward Annual
Statutory or Regulatory
Contribution Limit
Portability of
Unless the employer has
Any amounts in the
Unless the employer has
Unless the employer has
In instances where an
Arrangement
made the HRA available
arrangement are forfeited made the HRA available
made the HRA available
individual loses access to
to former employees,
when an employee
to former employees,
to former employees,
a retiree-only HRA,
amounts in the
separates from the
amounts in the
amounts in the
extensions for those
arrangement are forfeited employer.
arrangement are forfeited arrangement are forfeited covered by COBRA
when an employee
when an employee
when an employee
sometimes apply.
separates from the
separates from the
separates from the
employer, although
employer, although
employer, although
extensions for those
extensions for those
extensions for those
covered by COBRA
covered by COBRA
covered by COBRA
sometimes apply.
sometimes apply.
sometimes apply.
Sources: Congressional Research Service (CRS) analysis of IRC §§105, 106, and 9831(d) and other IRS sources (available upon request to congressional clients).
Notes: C-CPI-U = Chained Consumer Price Index for All Urban Consumers; COBRA = Consolidated Omnibus Budget Reconciliation Act of 1985 (P.L. 99-272)
continuation coverage; IRC = Internal Revenue Code; IRS = Internal Revenue Service.
a. Employers need not actually contribute to HRAs until employees seek reimbursement from the HRAs; the arrangements may be simply notional. To facilitate easy
reading, this table uses the term contribution to also refer to amounts that employers make available to employees for reimbursement under the terms of the
arrangement. The HRA amount made available to individuals also is often referred to as the reimbursement limit. U.S. Government Accountability Office (GAO),
Consumer Directed Health Plans: Health Status, Spending, and Utilization of Enrollees in Plans Based on Health Reimbursement Arrangements, GAO-10-616, July 2010, p. 7,
at https://www.gao.gov/assets/gao-10-616.pdf.
b. For more information on C-CPI-U, see CRS Report R43347, Budgetary and Distributional Effects of Adopting the Chained CPI.
c. Reimbursements for pretax premiums for group health plan coverage sponsored by the employer of an eligible employee’s spouse must be counted as income.
CRS-17

d. In general, health plans in their provision of excepted benefits are exempt from all federal health insurance requirements. A diverse col ection of insurance benefits
can be considered excepted benefits, including auto liability insurance, limited-scope dental and vision benefits, benefits for long-term care, specific disease coverage,
and supplemental Medicare plans (i.e., Medigap plans).
e. Most types of comprehensive coverage are considered minimum essential coverage, including public coverage, such as coverage under programs sponsored by the
federal government (e.g., Medicaid, Medicare) and private insurance (e.g., a spouse’s employer-sponsored insurance, individual insurance). For information on the
types of plans in which an individual with a QSEHRA can enrol , see IRS, “Appendix A: Types of Minimum Essential Coverage,” IRS Notice 2017-67.

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Health Reimbursement Arrangements (HRAs): Overview and Related History

Appendix. A Brief Legislative and Regulatory
History of Health Reimbursement Arrangements
Health Reimbursement Arrangements (HRAs) have a unique history that stems, in part, from the
treatment of this account-based benefit as employer-sponsored insurance for tax and regulatory
purposes. As such, a chronological history of HRAs can help to contextualize some of the
different rules that apply to group health plan HRAs, qualified small employer HRAs
(QSEHRAs), individual coverage HRAs (ICHRAs), excepted benefit HRAs, and retiree-only
HRAs.
HRAs as Group Health Plans
HRAs were not explicitly established in statute but instead were first acknowledged by the
Internal Revenue Service (IRS) in guidance issued in 2002.60 Per the IRS, HRAs are
arrangements that are paid solely by the employer; reimburse employees only for their, their
spouse’s, and their dependents’ medical care expenses (including premiums); provide
reimbursements up to a maximum dollar amount; and carry forward unused balances in the
arrangement from one year to the next.
Initially, employers typically offered HRAs to their employees in one of two ways: (1) alongside
a health insurance plan or (2) standing alone.61 In offering a stand-alone HRA, employers would
not offer health insurance coverage to their employees but instead would offer to contribute to an
HRA on the employees’ behalf. Employees then could use the funds from the HRA to cover the
cost of health insurance coverage, including coverage offered in the individual market.
Employees also could use these amounts to cover the cost for medical care directly, which may
have been especially relevant to employees who did not purchase insurance.
HRA contributions are not counted in an employee’s wage income and hence are not subject to
income or payroll taxes. This exclusion is the result of the IRS considering HRAs a group health
plan, a term that generally refers to employer-sponsored health insurance coverage.62 In other
words, employer HRA contributions are excluded from an employee’s income in the same way
that employer contributions to employer-sponsored health insurance premiums are excluded from
an employee’s income.
Being considered a group health plan allows HRAs to have tax-advantaged status but also results
in HRAs being subject to other requirements that generally apply to certain private health
insurance plans. For health plan regulatory purposes, HRAs are considered a self-insured group
health plan and generally are subject to self-insured group health plan requirements.63 For

60 Internal Revenue Service (IRS), “Health Reimbursement Arrangements,” Notice 2002-45, at https://www.irs.gov/
pub/irs-drop/n-02-45.pdf (hereinafter, IRS Notice 2002-45); Revenue Ruling 2002-41.
61 As initially defined, health reimbursement arrangements (HRAs) were not required to be offered alongside health
insurance and there was no requirement that any employee receiving an HRA must be enrolled in any type of health
insurance coverage. Relatedly, employers were not precluded from offering HRAs alongside employer-sponsored
health insurance coverage. For example, see IRS, “Section 105—Amounts Received Under Accident and Health Plans
(Also 106—Contributions by an Employer to Accident and Health Plans, 125—Cafeteria Plans,” IRS Revenue Ruling
2002-41, at https://www.irs.gov/pub/irs-drop/rr-02-41.pdf.
62 Contributions to and appropriate reimbursements from an HRA generally are excluded from an employee’s gross
income under 26 U.S.C. §§105 and 106.
63 For a description of self-insured group health plans and an overview of how private health insurance is regulated, see
“Regulation of Private Health Insurance: HRAs as Self-Insured Group Health Plans” text box in this report. IRS,
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example, HRAs are subject to the same nondiscrimination rules applicable to self-insured group
health plans generally.64 If HRAs do not comply with self-insured group health plan requirements,
employers risk being penalized for offering noncompliant self-insured group health plans.65
Regulation of Private Health Insurance: HRAs as Self-Insured Group Health Plans
Federal regulation of private health insurance plans generally varies based on the segment of the private health
insurance market in which the plan is sold (i.e., individual market, ful y insured small-group market, ful y insured
large-group market, and self-insured plans). Some private health insurance requirements apply to all market
segment plans, and some apply to a subset of market segment plans.
The individual market (or non-group market) is where individuals and families buying insurance on their own (i.e.,
not through a plan sponsor) may purchase health plans.
Health plans in the group market are offered through a plan sponsor, typically an employer. For regulatory
purposes, the group market is divided into the ful y insured small-group market, the ful y insured large-group
market, and self-insured plans.
For purposes of federal requirements that apply to the group market, states may elect to define small groups as
groups with 50 or fewer individuals (e.g., employees) or groups with 100 or fewer individuals. The definition for
large group builds on the small-group definition; a large group is a group with at least 51 individuals or a group
with at least 101 individuals, depending which small-group definition is used in a given state.
Fully insured group market segments refer to health plans purchased by employers and other plan sponsors from
state-licensed issuers. Employers or other plan sponsors that offer self-insured plans set aside funds to pay for
health benefits directly, and they bear the risk of covering medical expenses generated by the individuals covered
under the self-insured plan.
HRAs are considered a self-insured group health plan and are subject to the federal requirements applicable to
such plans.
For more information on the regulation of private health insurance plans, see CRS Report R45146, Federal
Requirements on Private Health Insurance Plans.
HRAs and the Patient Protection and Affordable Care Act:
Integration Requirements
The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) established
various requirements on private health insurance plans, including self-insured group health plans.
One such requirement prohibited self-insured group health plans from setting annual limits on
how much the plan spends for covered health benefits during a plan year.66 HRAs are structured
in such a way that they generally cannot satisfy the annual limit requirement: HRAs are an
account-based benefit, and employers make fixed dollar amounts available through an HRA for

Department of the Treasury, Employee Benefits Security Administration (EBSA), Department of Labor (DOL);
Department of Health and Human Services (HHS), Centers for Medicare & Medicaid Services (CMS), “Health
Reimbursement Arrangements and Other Account-Based Group Health Plans,” 84 Federal Register 28893, June 20,
2019 (hereinafter, 84 Federal Register 28888).
64 26 U.S.C. §105(h); IRS Notice 2002-45.
65 26 U.S.C. §4980D.
66 More specifically, the requirement prohibits self-insured group health plans from setting annual limits on coverage of
the essential health benefits (EHB). The requirement to cover the EHB does not apply to self-insured group plans, but
such plans must comply with the prohibition on setting annual or lifetime limits with regard to their EHB-equivalent
benefits. 42 U.S.C. §300gg-11. For more information on this requirement, see CRS Report R45146, Federal
Requirements on Private Health Insurance Plans. This requirement applies to individual coverage, small-group
coverage, large-group coverage, and self-insured plans. See “Regulation of Private Health Insurance: HRAs as Self-
Insured Group Health Plans” text box in this report.
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the plan year (i.e., it is not an open-ended benefit).67 This naturally limits the extent to which an
HRA can reimburse an individual for covered health benefits, which means HRAs generally will
fail to satisfy the annual limit requirement.
The ACA also established a requirement that self-insured group health plans generally must
provide coverage for certain preventive health services without imposing cost sharing.68 Similar
to the annual limit requirement, HRAs, by design, generally fail this requirement; once an
individual receives reimbursement equal to the amount in his or her HRA, the HRA will no
longer be able to cover preventive care health services without imposing cost sharing.
In implementing the ACA, the IRS, Department of Labor (DOL), and Department of Health and
Human Services (HHS) (the tri-agencies) acknowledged a way in which HRAs can be considered
to satisfy the aforementioned requirements: through integration with a (non-HRA) group health
plan.69 An HRA is considered integrated with a group health plan if the employee receiving the
HRA is also enrolled in a (non-HRA) group health plan that does satisfy such requirements.70 Put
simply, if an HRA is paired with an employer-sponsored health insurance plan that satisfies the
necessary requirements, the collective unit (and each subcomponent of that unit) would be
considered to satisfy the requirements. The integration rule applied to HRAs that began on and
after January 1, 2014.71
The integration rule prevented HRAs from being able to be integrated with individual market
coverage (including coverage sold on and off an ACA individual market exchange), even though
individual market coverage is subject to the same annual limit and preventive care requirements
that apply to self-insured group health plans.72 The decision to not allow integration with
individual market plans was the result of tri-agency concerns that doing so could result in adverse
selection in the individual market.73 Further, in a 2019 rule on HRAs, the three agencies

67 IRS Notice 2002-45.
68 This requirement applies to individual coverage, small-group coverage, large-group coverage, and self-insured plans.
42 U.S.C. §300gg-13. See “Regulation of Private Health Insurance: HRAs as Self-Insured Group Health Plans” text
box in this report.
69 Group health plan HRAs also can be integrated with Medicare and TRICARE plans, if certain conditions are met.
IRS, “Guidance on the Application of Code §4980D to Certain Types of Health Coverage Reimbursement
Arrangements,” Notice 2015-17, at https://www.irs.gov/pub/irs-drop/n-15-17.pdf; IRS, Department of the Treasury,
EBSA, DOL, and HHS, “Patient Protection and Affordable Care Act: Preexisting Condition Exclusions, Lifetime and
Annual Limits, Rescissions, and Patient Protections,” 75 Federal Register 37188, June 28, 2010; and IRS, “Application
of Market Reform and other Provisions of the Affordable Care Act to HRAs, Health FSAs, and Certain other Employer
Healthcare Arrangements,” IRS Notice 2013-54, at https://www.irs.gov/pub/irs-drop/n-13-54.pdf (hereinafter, IRS
Notice 2013-54). Certain aspects of this guidance were subsequently included in a final rule issued by the three
agencies: IRS, Department of the Treasury, EBSA, DOL, and HHS, “Final Rules for Grandfathered Plans, Preexisting
Condition Exclusions, Lifetime and Annual Limits, Rescissions, Dependent Coverage, Appeals, and Patient Protections
Under the Affordable Care Act,” 80 Federal Register 72192 (hereinafter, 80 Federal Register 72192).
70 The health insurance coverage with which group health plan HRAs can be integrated does not need to satisfy any
arrangement-specific cost-sharing requirements (e.g., have a high enough deductible). Furthermore, the integrated
group health plan is not required to be the employee’s employer-sponsored plan. For example, the employee’s HRA
may be integrated with a group health plan offered by his or her spouse’s employer. IRS Notice 2013-54 and DOL,
HHS, and the Department of the Treasury, FAQs About Affordable Care Act Implementation Part 37, January 12, 2017,
at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-37.pdf.
71 IRS Notice 2013-54.
72 DOL, HHS, and the Department of the Treasury, Affordable Care Act Implementation FAQs—Part 11, January 24,
2013, at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11; IRS Notice 2013-
54; 26 C.F.R. §54.9815-2711(d); and 80 Federal Register 72192.
73 The term adverse selection describes “a situation in which an insurer (or an insurance market as a whole) attracts a
disproportionate share of unhealthy individuals.” American Academy of Actuaries, Risk Pooling: How Health
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acknowledged that HRAs that could be integrated with individual market coverage also could
result in health factor discrimination.74 In other words, the three agencies were concerned that, if
allowed, employers may be incentivized to offer their “healthier” employees employer-sponsored
insurance and offer their “sicker” employees an HRA integrated with individual market coverage,
which in turn, would reduce the costs of the employer-sponsored insurance offered to the
“healthier” employees.75 If the disproportionately “sicker” employees enrolled in individual
market coverage, this could result in an increase in individual market coverage premiums for all
individuals purchasing coverage in that state’s individual market (holding constant all other
factors that might affect premiums). The extent of this increase in individual market premiums
would depend on the health status and total number of employees shifted into the individual
market in response to this change in employer offer strategies.
These developments effectively prevented employers from being able to offer stand-alone HRAs
to their employees, though Congress and the three agencies both have subsequently revisited the
issue of stand-alone HRAs.
Regulation of Private Health Insurance: Retiree-Only Plans
Ful y insured and self-insured group health plans (including HRAs) covering fewer than two current employees are
exempt from all federal private health insurance requirements. This exemption was established in the Health
Insurance Portability and Accountability Act (P.L. 104-191), which was enacted in 1996.
Considering this regulatory structure, retiree-only HRAs do not need to be integrated with or offered alongside
any type of health insurance plan because they are not subject to the private health insurance requirements that
result in the need for HRA integration. As a result, retiree-only HRAs can be offered as stand-alone HRAs.
For an overview of group health plans covering fewer than two current employees, see CRS Report R46003,
Applicability of Federal Requirements to Selected Health Coverage Arrangements.

Insurance in the Individual Market Works, July 2017, at https://www.actuary.org/sites/default/files/files/publications/
RiskPoolingFAQ071417.pdf; 84 Federal Register 28898.
74 84 Federal Register 28896.
75 To understand this effect on premiums, it is important to consider how premiums are determined. Premiums are
determined largely based on the estimated amount of medical claims that an insurer will need to cover for the group of
individuals being insured. If an employer reduced the estimated claims of the employees enrolled in its employer-
sponsored plan by shifting “sicker” employees to an HRA integrated with individual coverage, premiums for the
employer-provided plan would go down (holding constant all other factors that might affect premiums). However, if
these “sicker” employees used their HRAs to enroll in individual market coverage, individual market coverage
premiums would increase (holding constant all other factors that might affect premiums) to account for the additional
claims that the individual market insurers would need to cover. The extent of this increase in individual market
premiums would depend on the health status and total number of employees shifted into the individual market in
response to this change in employer offer strategies. A premium increase in one state’s individual market would affect
the premiums of all individuals enrolling in coverage in the state’s individual market. (Though some individual market
enrollees may not feel such effects if they are receiving coverage that is fully subsidized by the premium tax credit. For
more information on premium tax credits, see CRS Report R44425, Health Insurance Premium Tax Credit and Cost-
Sharing Reductions.)
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Recent HRA Developments: QSEHRAs, ICHRAs, and Excepted
Benefit HRAs
Congress Establishes QSEHRAs
In 2016, Congress established a new type of HRA: a qualified small employer health
reimbursement arrangement (QSEHRA).76 This new type of HRA shared many of the rules that
applied to HRAs in general; however, it also had some distinct features. The following three
features are particularly relevant to this historical narrative:
1. Per statute, QSEHRAs are not considered a group health plan for private health insurance
requirement purposes.
2. As implied by the name, only certain small employers could provide QSEHRAs.
3. QSEHRAs could be used to pay for individual market coverage.
Because QSEHRAs are not considered a group health plan for private health insurance
requirement purposes, these arrangements do not need to be integrated with a (non-HRA) group
health plan to satisfy private health insurance requirements. However, separate QSEHRA rules
require individuals to be enrolled in minimum essential coverage to receive QSEHRA tax
benefits.77 To satisfy the minimum essential coverage requirement, individuals could use their
QSEHRA to enroll in individual market coverage.
In creating QSEHRAs, Congress recognized that offering employer-sponsored insurance
coverage may not be feasible for some small employers.78 Thus, QSEHRAs provide small
employers with the ability to offer a more limited health benefit to their employees without also
having to offer their employees employer-sponsored health insurance coverage. In other words,
QSEHRAs provide small employers the ability to offer a type of stand-alone HRA.
Executive Order 13813
In 2017, then-President Trump issued Executive Order (E.O.) 13813, “Promoting Healthcare
Choice and Competition Across the United States.” E.O. 13813 directed the three agencies to
“consider proposing regulations or revising guidance, to the extent permitted by law and
supported by sound policy, to increase the usability of HRAs, to expand employers’ ability to
offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup [i.e.,
individual market] coverage.”79 In response to this executive order, the three agencies finalized a
rule in 2019 that established two new HRAs: the ICHRA and the excepted benefit HRA.

76 Section 18001 of the 21st Century Cures Act (P.L. 114-255).
77 Most types of comprehensive coverage are considered minimum essential coverage, including public coverage, such
as coverage under programs sponsored by the federal government (e.g., Medicaid, Medicare) and private insurance
(e.g., employer-sponsored insurance; non-group, or individual, insurance). 26 U.S.C. §106(g).
78 See committee report for a bill related to the 21st Century Cures Act (H.R. 5447). U.S. Congress, House Committee
on Ways and Means, Small Business Health Care Relief Act of 2016, To Accompany H.R. 5447, 114th Cong., 2nd sess.,
June 21, 2016, H.Rept. 114-634 (Washington: GPO, 2016), p. 9.
79 82 Federal Register 48385.
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ICHRAs
The 2019 tri-agency rule that created ICHRAs effectively removed the prohibition on HRA
integration with individual market coverage for all employers (i.e., not just small employers, as
was the case with QSEHRAs).80 Since individual market coverage is subject to the same annual
limits and preventive services coverage requirements that apply to group health plans, the rule
found that HRAs could be integrated with individual market coverage and still satisfy the
necessary group health plan requirements.81
However, in allowing this integration, the three agencies acknowledged the potential for the
aforementioned adverse selection and health factor discrimination. As such, the three agencies
created specific rules for ICHRAs that sought to limit the extent to which employers would be
able to (either intentionally or unintentionally) steer employees and their dependents with adverse
health factors away from the employer’s health insurance plan and into the individual market.82
One such ICHRA-specific rule prevents employers offering ICHRAs from being able to offer
employees a choice between an ICHRA and an employer-sponsored insurance plan. Employers
offering ICHRAs do not need to offer this benefit to all of their employees, but if an employer
offers an ICHRA to only a subset of its workforce, the employer must offer this benefit similarly
to everyone within the specified class of employees (e.g., full-time employees, part-time
employees). For example, an employer may elect to offer full-time employees a (non-HRA)
group health plan and part-time employees an ICHRA, but the employer cannot offer either group
both benefit options.
Another ICHRA-specific rule requires employers to offer ICHRAs on the same terms to every
employee within a class of employees being offered an ICHRA. On the same terms refers to both
the amount of funding available for reimbursement and the benefit terms and conditions.83
Excepted Benefit HRAs
Excepted benefits are a group of benefits that either (1) are exempted from all federal private
health insurance requirements in any circumstances or (2) are exempted from all federal private
health insurance requirements only when specified conditions are met.84 Per federal statute, there
are four categories of excepted benefits, one of which is limited excepted benefits.85 Limited

80 Individual coverage HRAs (ICHRAs) are similar to qualified small employer HRAs (QSEHRAs) in that both operate
as stand-alone HRAs that can be used to purchase individual market coverage. However, only small employers can
offer QSEHRAs, whereas all employers can offer ICHRAs.
81 More specifically, ICHRAs can be integrated with any individual policy that satisfies the annual limit and preventive
care requirements. This includes individual coverage on and off the individual health insurance exchanges, catastrophic
plans, transitional plans (or grandmothered plans), and fully insured student health insurance coverage. It does not
include short-term, limited-duration insurance or health care sharing ministries. 84 Federal Register 28899-28900,
28923-28926.
82 84 Federal Register 28898.
83 An ICHRA does not fail the test of on the same terms because employees’ HRA contributions vary due to age and
family size.
84 A diverse collection of insurance benefits can be considered excepted benefits, including auto liability insurance,
limited-scope dental and vision benefits, benefits for long-term care, specific disease coverage, and supplemental
Medicare plans (i.e., Medigap plans). For more information on excepted benefits, see “Excepted Benefits” in CRS
Report R46003, Applicability of Federal Requirements to Selected Health Coverage Arrangements.
85 One category is exempt from complying with all federal health insurance requirements in all circumstances; the other
three categories are exempt from complying with all of the requirements only when specified conditions are met. 26
U.S.C. §9832(c).
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excepted benefits are exempt from federal health insurance requirements only when specified
conditions are met. To be a limited excepted benefit, the benefit must be provided under a
separate insurance policy or otherwise cannot be an “integral part” of a group health plan.86
Benefits that can be considered a limited excepted benefit include limited-scope dental or vision
benefits, benefits for long-term care, and “other similar, limited benefits as are specified in
regulations.”87
The 2019 tri-agency rule established a way in which HRAs could be offered as a limited excepted
benefit. In doing so, the three agencies applied certain rules to this type of HRA so it is consistent
with the statutory framework of excepted benefits generally.88 Per regulations, to be considered an
excepted benefit, HRAs must satisfy several criteria; the HRAs (1) cannot be an integral part of
the plan and must be offered alongside another (non-HRA) group health plan, (2) must provide
benefits that are limited in scope (maximum contribution for 2022 is $1,800), (3) generally cannot
provide reimbursement for health insurance coverage premiums, and (4) must be made available
under the same terms to all similarly situated individuals.89 As an excepted benefit, this type of
HRA is exempt from the self-insured group health plan requirements and therefore does not need
to be integrated with another health insurance plan.90

Author Information

Ryan J. Rosso

Analyst in Health Care Financing

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

86 26 U.S.C. §9831(c)(1).
87 26 U.S.C. §9832(c)(2).
88 84 Federal Register 28933.
89 26 C.F.R. §54.9831-1(c)(3)(viii).
90 26 U.S.C. §9831(c).
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