HRA Administration Services for Employers | CafeHealth

HRA administration services for employers cover the paperwork, compliance, and day-to-day claims work involved in running a Health Reimbursement Arrangement, so a company doesn't have to figure out IRS rules, plan documents, and reimbursement logistics on its own. If you're an HR leader or a broker looking at setting up an ICHRA or QSEHRA for a client, this is the stuff that actually matters: what the plan types mean, what the IRS requires, what a third-party administrator (TPA) does versus what stays on your plate, and roughly what it costs. Let's get into it.

What Exactly Is an HRA, and How Is It Different From an FSA or HSA?

A Health Reimbursement Arrangement (HRA) is an employer-funded account that reimburses employees for qualified medical expenses, including insurance premiums in some cases. Unlike an FSA, which employees fund with their own pre-tax payroll deductions, an HRA is funded entirely by the employer. Unlike an HSA, which the employee owns and can take with them when they leave, the money in an HRA belongs to the employer's plan, not the individual. There's no employee contribution and no portability once someone leaves the job, though the employer decides the rules around forfeiture.

The Four Main HRA Flavors

Not all HRAs work the same way, and picking the wrong type for your workforce is probably the single most common mistake employers make:

●QSEHRA (Qualified Small Employer HRA): Built for businesses with fewer than 50 full-time employees that don't offer a group health plan. Employees buy their own individual market coverage and get reimbursed, tax-free, up to an annual IRS limit.

●ICHRA (Individual Coverage HRA): Available to employers of any size, with no cap on contributions. It can be offered instead of a traditional group plan, or to specific classes of employees (like part-time or seasonal workers) while full-time staff get a regular group plan.

●GCHRA (Group Coverage HRA, sometimes called an Integrated HRA): Sits alongside a traditional group health plan to reimburse deductibles, copays, and coinsurance. This is the more traditional HRA model many employers already know.

●Excepted Benefit HRA (EBHRA): A smaller, capped account offered alongside a group plan (even if the employee waives the group plan) that can reimburse premiums for excepted benefits like dental, vision, and short-term coverage, plus other medical costs.

The right choice depends on company size, whether you already sponsor a group plan, and how much administrative complexity you want to take on. This is exactly the kind of decision our team walks through with employers on our HRA administration services page.

How Does HRA Administration Actually Work Day to Day?

Once you've picked a plan type, running an HRA breaks down into four ongoing pieces: plan design, funding, claims processing, and substantiation. Plan design means setting the contribution amount, deciding which expenses qualify, choosing whether unused funds roll over, and writing that all into a formal plan document. Funding is straightforward on paper (the employer sets aside the money) but the mechanics of how it flows into a reimbursement account and how it's tracked per employee is where a lot of manual errors creep in for companies trying to do this in a spreadsheet.

Claims and reimbursement is the part employees actually interact with. An employee pays for a qualifying expense, submits a claim with documentation, and gets reimbursed, either through direct deposit, a debit card tied to the account, or a paycheck add-on. Substantiation is the IRS requirement that every reimbursed expense be verified as an eligible medical expense under Section 213(d) of the tax code, with real documentation, not just an employee's word. This has to happen for every single claim, every pay cycle, for every employee on the plan. Miss this step consistently and the whole arrangement can lose its tax-favored status, which is a much bigger problem than a late reimbursement.

For an ICHRA specifically, there's an added layer: the employer also has to verify that each employee actually has individual health insurance in force before reimbursing premiums, since ICHRA funds can only reimburse premiums for people who are enrolled in a qualifying individual policy or Medicare.

What Compliance Rules Do Employers Actually Have to Follow?

ERISA Plan Documents and Reporting

Most HRAs are considered group health plans under ERISA, which means they need a written plan document, a Summary Plan Description (SPD) distributed to participants, and in many cases a Form 5500 filing once the plan covers 100 or more participants. Skipping the plan document isn't just a technicality, it's one of the most commonly cited gaps when the Department of Labor audits small and mid-size employer health plans.

ACA Affordability for ICHRA

If you're offering an ICHRA in place of a traditional group plan to satisfy the ACA employer mandate, the contribution has to be considered affordable relative to the employee's household income. The IRS sets this affordability percentage annually; for 2025 it's 9.02% of household income, per IRS Revenue Procedure 2024-35 (IRS.gov). That percentage is adjusted almost every year, so applicable large employers relying on ICHRA affordability safe harbors need to check the current-year figure before finalizing contribution amounts, since getting it wrong can trigger employer shared responsibility penalties.

Nondiscrimination Rules

GCHRAs and EBHRAs are subject to nondiscrimination testing under Section 105(h), meaning you generally can't design a plan that favors highly compensated employees over everyone else in eligibility or benefits. ICHRAs have their own separate class-based nondiscrimination structure, where employees are grouped into permitted classes (full-time, part-time, salaried, hourly, geographic location, and a few others) and everyone in a class has to be treated the same way.

COBRA Applicability

Here's a fact a lot of employers miss: HRAs are considered group health plans and are generally subject to COBRA continuation coverage requirements, per Department of Labor COBRA regulations and IRS guidance treating HRAs as group health plans. That means when an employee has a qualifying event like termination or reduced hours, they may be entitled to continue their HRA coverage under COBRA, with the same 18-month (or longer, in certain cases) continuation window that applies to medical plans. Excepted Benefit HRAs and QSEHRAs offered by employers with fewer than 20 employees are typically exempt from COBRA because small employers generally aren't subject to COBRA at all, but this needs to be checked against your specific headcount and plan type, not assumed.

What Does a TPA Like CafeHealth Handle vs What's Still on You?

This is usually the question employers care about most: if we hire an administrator, what actually gets taken off our plate? Here's a realistic breakdown:

●TPA typically handles: plan document drafting and updates, SPD creation, claims processing and substantiation, debit card or reimbursement logistics, COBRA notice generation and administration, compliance monitoring for IRS and DOL rule changes, and employee support for claims questions.

●Employer typically handles: deciding the plan design and contribution amounts, communicating the benefit to staff during open enrollment, funding the account on schedule, and making final decisions on plan changes or terminations.

●Shared responsibility: Form 5500 filing often requires employer sign-off even when the TPA prepares it, and nondiscrimination testing results need employer review since only the employer knows the full compensation picture across the company.

The value of outsourcing isn't that it removes every decision from you, it's that it removes the guesswork around IRS substantiation rules, COBRA deadlines, and plan document language, which are the areas where DIY administration tends to fall apart first.

What Does It Cost and How Long Does Setup Take?

Costs for HRA administration are usually structured as a per-employee-per-month (PEPM) fee plus a one-time setup fee, though exact pricing varies by administrator, plan type, and employee count. QSEHRA and ICHRA administration tends to run lower per employee than a full-service GCHRA integrated with a major medical plan, simply because there's less claims volume and fewer moving pieces to coordinate with a carrier.

Setup timelines typically run four to eight weeks from the decision to move forward to a live plan, depending on how quickly the employer finalizes plan design decisions like contribution tiers and eligible expense categories. QSEHRA setup tends to move faster since there's no carrier coordination involved. ICHRA setup can take longer if you're running it alongside a group plan for certain employee classes, since you need to coordinate effective dates and eligibility rules between the two plans carefully. Open enrollment timing matters too. Most employers try to have everything finalized at least 60 days before their plan year starts so employees have time to shop for individual coverage if they're moving to an ICHRA model.

Why Does Location Matter, and What Should Phoenix and Arizona Employers Think About?

HRA rules themselves are federal, set by the IRS and DOL, so the core compliance framework doesn't change based on where your business is located. But local market factors still shape how well an HRA works in practice. Arizona has a fairly active individual health insurance marketplace with multiple carriers competing in the Phoenix metro area, which matters a lot for ICHRA specifically, since the whole model depends on employees being able to find decent individual coverage to pair with their reimbursement allowance. In markets with thin carrier participation, an ICHRA can leave employees with fewer real plan choices; in a market like Phoenix with more competition, employees generally have more options to work with.

Employers in Arizona also need to keep an eye on state insurance department rules around individual market enrollment periods, since ICHRA reimbursements are tied to the employee actually being enrolled in a qualifying policy, and special enrollment period timing can affect when coverage (and therefore reimbursement eligibility) actually kicks in. If you're a Phoenix-based employer weighing whether ICHRA makes sense for your workforce compared to a traditional group plan, it's worth working through the local carrier landscape with an administrator who's set up plans in the area before, which is exactly what our HRA administration services in Phoenix team does with employers day to day.

What Else Should Employers Weigh Before Committing to an HRA Model?

Before finalizing an HRA, it helps to run through a short internal checklist:

1.Headcount and current coverage: Do you currently offer a group plan, and are you trying to replace it, supplement it, or add coverage for employees who currently have none?

2.Budget predictability: HRAs give you a fixed, capped contribution per employee, which is often more predictable than watching group plan premiums climb year over year.

3.Employee comfort with shopping for coverage: ICHRA and QSEHRA both require employees to select their own individual policy, which is a bigger mental shift for staff used to a single employer-chosen group plan.

4.State and carrier landscape: As covered above, this affects how well ICHRA specifically will work for your team.

5.Administrative bandwidth: Even with a TPA handling claims and compliance, someone internally needs to own plan communication and enrollment support each year.

Working through these five points honestly before you sign anything saves a lot of mid-year headaches.

If you're weighing whether an HRA is the right move for your company, or you already have one and it feels like more administrative work than it should be, grab a free consultation with Shannon and walk through your specific situation together. No pressure, just a straight conversation about what would actually work for your team.

Frequently Asked Questions About HRA Administration

What is a Health Reimbursement Arrangement and how does it work?

An HRA is an employer-funded account that reimburses employees, tax-free, for qualified medical expenses and sometimes insurance premiums. The employer sets the contribution amount and the rules, the employee submits claims with documentation, and the reimbursement gets paid out, usually through direct deposit or a debit card. Unlike an HSA, the employee never owns the account and doesn't take it with them when they leave the job.

How much can an employer contribute to an HRA in 2026?

It depends on the HRA type. For QSEHRA, the IRS sets annual contribution limits that are indexed each year in a Revenue Procedure; for 2025 those limits are $6,350 for self-only coverage and $12,800 for family coverage, per IRS.gov guidance. ICHRA has no IRS-imposed contribution cap at all, so the employer decides the amount. Excepted Benefit HRAs are capped at a smaller amount, $2,150 for 2025 per IRS guidance. Since these figures adjust annually, always confirm the current-year number on IRS.gov before finalizing your plan year budget.

Is an HRA subject to COBRA continuation coverage?

Generally, yes. HRAs are treated as group health plans under Department of Labor COBRA regulations, so when an employee has a qualifying event like termination, they may have the right to continue their HRA coverage under COBRA. There are exceptions, including for small employers with fewer than 20 employees who are typically exempt from COBRA altogether, and for Excepted Benefit HRAs in certain configurations, so it's worth confirming your specific situation rather than assuming either way.

What's the difference between an ICHRA and a QSEHRA?

QSEHRA is only available to employers with fewer than 50 full-time employees who don't offer any group health plan, and it comes with an IRS-set annual contribution cap. ICHRA is open to employers of any size, has no contribution cap, and can be offered to some employee classes while others stay on a traditional group plan. Both reimburse employees for individual market premiums and eligible medical expenses, but ICHRA gives employers a lot more flexibility in plan design.

Do I need a third-party administrator to run an HRA for my small business?

Technically no, but practically, most employers find it's not worth doing alone. The IRS substantiation requirements, ERISA plan document rules, and COBRA notice deadlines all carry real penalties if they're missed, and a TPA is built to handle exactly that ongoing compliance work along with the day-to-day claims processing. For a small business without dedicated HR or benefits staff, an administrator usually pays for itself just in avoided compliance risk.

How long does it take to actually get an HRA up and running?

Most employers can go live in four to eight weeks once they've decided on plan type and contribution levels. QSEHRA setups tend to move on the faster end since there's no carrier coordination involved, while ICHRA setups paired with an existing group plan can take a bit longer to align eligibility rules and effective dates between the two plans.