HRA Administration Services for Employers | CafeHealth
What is Health Reimbursement Arrangement (HRA)?
An HRA administration services for employers arrangement is basically a company-funded account where your employees get reimbursed, tax-free, for medical expenses or insurance premiums, and the whole thing runs under rules the IRS and DOL set for how you fund it, track it, and report on it. You decide how much money goes in each year. Your employees submit proof of a medical expense. If it qualifies, they get the money back, and neither side pays payroll tax on it. That's the entire concept in one paragraph. The rest of this guide is about the details that actually matter when you're the one signing off on the plan design, the compliance paperwork, and the vendor contract.
If you're comparing running this yourself against handing it to a third-party administrator, you're in the right place. We'll walk through the four main HRA types, the tax math, the compliance list nobody tells you about upfront, and what a company like CafeHealth actually does day to day when we administer these plans.
What Exactly Is an HRA and How Does the Money Work?
A Health Reimbursement Arrangement (HRA) is an employer-funded benefit, not an employee savings account like an HSA. That distinction matters a lot. You, the employer, put money into a notional account for each eligible employee. There's no employee payroll deduction required, though some HRA types allow employees to pair pretax salary contributions with it depending on structure. The employee pays for a qualified medical expense out of pocket, submits a receipt or claim, and gets reimbursed up to the amount you've allocated. Unused funds can roll over year to year if you design the plan that way, or they can reset annually. You keep the money if the employee never uses it or leaves the company, since it was never actually theirs until reimbursed.
The tax benefit runs in both directions. Reimbursements employees receive for qualified medical expenses are excluded from their taxable income under Internal Revenue Code Section 105. Your company deducts the reimbursements as a business expense, and you don't pay FICA or FUTA on the amounts. That's a real, immediate saving compared to giving someone the equivalent amount as taxable wages to go buy their own coverage.
What Are the Different Types of HRAs, and Which One Fits My Company?
There isn't one single HRA. There are four distinct flavors, and picking the wrong one can mean your plan doesn't legally do what you wanted it to do. Here's the breakdown:
●QSEHRA (Qualified Small Employer HRA): Built for employers with fewer than 50 full-time equivalent employees who don't offer a group health plan at all. Employees use QSEHRA funds to buy their own individual market coverage and other medical expenses, reimbursed tax-free.
●ICHRA (Individual Coverage HRA): Available to employers of any size, with no participant cap. Employees must have individual health insurance (marketplace or off-exchange) or Medicare to participate. You can offer different allowance amounts by employee class, like full-time versus part-time or by location.
●GCHRA (Group Coverage HRA, sometimes called an integrated HRA): Works alongside a traditional group health plan you already sponsor. It reimburses cost-sharing items like deductibles and copays, essentially lowering the effective cost of your existing plan.
●EBHRA (Excepted Benefit HRA): A smaller, supplemental HRA offered alongside a group health plan (even if the employee doesn't enroll in it), limited to a modest annual amount and usable for things like copays, dental, and vision.
Small businesses without the budget for group coverage usually land on QSEHRA. Larger or multi-location employers wanting more design flexibility, especially ones tired of annual premium renewal shock, tend to move toward ICHRA. If you already sponsor a group plan and just want to soften out-of-pocket costs, a GCHRA or EBHRA does that job without touching your existing carrier relationship.
How Much Can an HRA Actually Save My Company Compared to a Group Health Plan?
The appeal isn't just the tax treatment, it's that you control the ceiling. With a fully insured group plan, you're at the mercy of whatever renewal increase your carrier hands you, and national trend has been running well above general inflation for years according to KFF's annual Employer Health Benefits Survey. With an HRA, especially an ICHRA, you set a fixed dollar allowance per employee class. If costs rise, your exposure only rises to the extent you choose to raise the allowance. You're not locked into a single carrier's underwriting or a renewal letter that shows up in October with a double-digit jump.
Predictable Budgeting Without Losing the Tax Break
Because contributions are deductible business expenses and reimbursements are tax-free to employees, you get the same tax efficiency as a group plan, but with a budget line you actually set instead of one a carrier sets for you. Employees also benefit because they're choosing plans that fit their own household, their own doctors, and their own drug formulary needs, instead of being forced into whatever single plan design you negotiated for the whole company.
There's also a recruiting angle worth mentioning. Offering an ICHRA lets you extend benefits to remote workers across state lines without maintaining multi-state group plan compliance, since the employee is buying individual coverage in their own market.
What Do the IRS and DOL Actually Require Me to Do?
This is where a lot of employers underestimate the workload, and it's exactly why administration services exist. An HRA is a self-funded ERISA welfare benefit plan in most cases, which brings a specific compliance checklist:
●Written plan document and summary plan description (SPD): ERISA requires a formal plan document, not just an email explaining the benefit, plus an SPD given to participants.
●Substantiation of claims: The IRS requires that every reimbursement be tied to a legitimate medical expense with supporting documentation, no exceptions, or the reimbursement becomes taxable income.
●Nondiscrimination testing: Self-insured plans, including most HRAs, are subject to IRC Section 105(h) nondiscrimination rules that prevent you from favoring highly compensated employees in eligibility or benefits.
●ICHRA affordability notices: If you're using an ICHRA to satisfy Affordable Care Act employer mandate obligations, you need to calculate affordability using the current IRS percentage. For 2025, the ACA affordability threshold is 9.02% of household income, per IRS Revenue Procedure 2024-35.
●Form 5500 filing: Per DOL Employee Benefits Security Administration (EBSA) guidance, most funded or larger unfunded welfare plans must file an annual Form 5500. Small, unfunded welfare plans with fewer than 100 participants at the start of the plan year are generally exempt, but once you cross that threshold, the filing requirement kicks in.
●Annual contribution limits: For 2025, the IRS QSEHRA maximum reimbursement limits are $6,350 for self-only coverage and $12,800 for family coverage, per Revenue Procedure 2024-25. The Excepted Benefit HRA maximum annual contribution for 2025 is $2,150, also set under IRS guidance for that plan year.
Miss any one of these and you're not just risking an audit letter, you're risking the tax-free status of reimbursements your employees already received.
What Does Full-Service HRA Administration Actually Include?
When employers ask what they're paying a TPA for, this is the honest answer. It's not one task, it's a stack of ongoing operational work:
1.Plan document and SPD drafting that matches the HRA type you've chosen and your specific class structure.
2.Eligibility tracking as employees are hired, terminated, or move between classes, so allowances start and stop at the right time.
3.Claims intake and substantiation review, checking every submitted receipt against IRS rules before releasing reimbursement.
4.Reimbursement processing and disbursement, usually through direct deposit or a payment card, depending on the design.
5.Nondiscrimination testing run annually to confirm the plan still qualifies under Section 105(h).
6.Form 5500 preparation and filing when your participant count requires it.
7.ICHRA affordability calculations and required employee notices, including the 90-day advance notice ICHRA rules call for.
8.Employee support, meaning someone answers the phone or the email when a participant doesn't understand why a claim was denied, instead of that call landing on your HR team's desk.
That last point is underrated. A lot of the real cost of running an HRA in-house isn't the software, it's the hours your HR generalist spends fielding "why wasn't my dentist bill covered" emails every week.
Should I Handle This In-House or Hire a TPA?
Some employers with a single HR person and a handful of employees do run a QSEHRA manually with a spreadsheet and good intentions. It's possible. It's just rarely a good use of anyone's time once you factor in the compliance stakes.
What In-House Administration Actually Requires
You'd need someone tracking IRS substantiation rules for every claim, running nondiscrimination testing annually, staying current on changing contribution limits and affordability percentages, drafting and updating plan documents when regulations shift, and building or buying a claims processing system that can integrate with payroll. Get the substantiation wrong and the IRS can treat reimbursements as taxable wages retroactively, which turns into a payroll tax problem for you, not just a paperwork headache.
What a TPA Like CafeHealth Takes Off Your Plate
A dedicated administrator handles the plan document, the claims processing, the compliance calendar, and the employee-facing support line, so your internal team deals with strategy and plan design instead of receipt-chasing. You also get continuity when your HR staff turns over, since the plan rules and history live with the administrator, not in one person's inbox. CafeHealth's HRA administration services page walks through the specific setup process and pricing structure if you want to see how that works for your headcount.
How Do I Actually Launch an HRA With CafeHealth?
The process is more straightforward than most employers expect once you've picked the right HRA type. Here's roughly how it goes:
1.Plan design consultation: You walk through your headcount, current group plan status (if any), and budget goals to land on QSEHRA, ICHRA, GCHRA, or EBHRA.
2.Class structure and allowance setting: For ICHRA especially, you decide how you'll split employee classes and what allowance each class gets.
3.Plan document and SPD drafting: CafeHealth prepares the formal documents required under ERISA and IRS rules.
4.Employee notices and enrollment: Required notices go out on the correct timeline, and employees get guided through choosing individual coverage if the HRA type requires it.
5.Ongoing administration: Claims, substantiation, eligibility updates, and compliance filings run on a recurring cycle from there.
Most employers can have a plan live within a normal renewal cycle if they start the process a couple of months ahead of their target effective date.
Frequently Asked Questions
What is a health reimbursement arrangement (HRA) and how does it work?
It's an account your company funds, not the employee, that reimburses qualified medical expenses tax-free. You set the allowance, the employee submits a claim with documentation, and they get reimbursed up to that amount.
What's the difference between an HRA, HSA, and FSA?
An HRA is funded solely by the employer and the employer keeps unused funds unless the plan is designed to roll them over. An HSA (Health Savings Account) is owned by the employee, portable between jobs, and can be funded by both employer and employee, but requires enrollment in a qualifying high-deductible health plan. An FSA (Flexible Spending Account) is usually funded through employee salary deferrals, is use-it-or-lose-it with limited rollover, and isn't tied to owning any particular health plan type.
Can employees use HRA funds to pay for health insurance premiums?
With a QSEHRA or ICHRA, yes, employees can generally use funds to pay individual market premiums along with other qualified medical expenses. A GCHRA tied to your existing group plan usually can't reimburse premiums for that same group plan, since it's meant to cover cost-sharing instead.
What are the current IRS contribution limits for an ICHRA or QSEHRA?
ICHRA has no IRS-set maximum allowance, you decide the amount per employee class. QSEHRA does have a cap: for 2025, that's $6,350 for self-only coverage and $12,800 for family coverage, per IRS Revenue Procedure 2024-25, and those limits get adjusted for inflation most years.
How much does it cost to outsource HRA administration to a third-party administrator?
Pricing typically runs as a monthly per-employee-per-month fee plus a setup charge for plan document drafting, and it varies based on your headcount and which HRA type you're running. It's worth comparing that fee against the staff hours you'd otherwise spend on claims processing and compliance tracking in-house.
Do I still need to worry about ACA reporting if I offer an ICHRA?
Yes. If you're an applicable large employer, offering an ICHRA doesn't remove your obligation to track affordability and file the required ACA information returns. Your administrator should be calculating affordability against the current IRS percentage each year as part of the service.
If you'd rather talk this through with a real person than keep reading spec sheets, book a free consultation with Shannon and we'll figure out which HRA design actually fits your company.
What is a health reimbursement arrangement (HRA) and how does it work?
It's an account your company funds, not the employee, that reimburses qualified medical expenses tax-free. You set the allowance, the employee submits a claim with documentation, and they get reimbursed up to that amount.
What's the difference between an HRA, HSA, and FSA?
An HRA is funded solely by the employer and the employer keeps unused funds unless the plan is designed to roll them over. An HSA (Health Savings Account) is owned by the employee, portable between jobs, and can be funded by both employer and employee, but requires enrollment in a qualifying high-deductible health plan. An FSA (Flexible Spending Account) is usually funded through employee salary deferrals, is use-it-or-lose-it with limited rollover, and isn't tied to owning any particular health plan type.
Can employees use HRA funds to pay for health insurance premiums?
With a QSEHRA or ICHRA, yes, employees can generally use funds to pay individual market premiums along with other qualified medical expenses. A GCHRA tied to your existing group plan usually can't reimburse premiums for that same group plan, since it's meant to cover cost-sharing instead.
What are the current IRS contribution limits for an ICHRA or QSEHRA?
ICHRA has no IRS-set maximum allowance, you decide the amount per employee class. QSEHRA does have a cap: for 2025, that's $6,350 for self-only coverage and $12,800 for family coverage, per IRS Revenue Procedure 2024-25, and those limits get adjusted for inflation most years.
How much does it cost to outsource HRA administration to a third-party administrator?
Pricing typically runs as a monthly per-employee-per-month fee plus a setup charge for plan document drafting, and it varies based on your headcount and which HRA type you're running. It's worth comparing that fee against the staff hours you'd otherwise spend on claims processing and compliance tracking in-house.
Do I still need to worry about ACA reporting if I offer an ICHRA?
Yes. If you're an applicable large employer, offering an ICHRA doesn't remove your obligation to track affordability and file the required ACA information returns. Your administrator should be calculating affordability against the current IRS percentage each year as part of the service.
Thinking about offering an HRA instead of a traditional group plan? You set the budget, employees pick coverage that fits their life, and the tax breaks flow both ways. ThereBook a free chat with Shannon.
