available because of the COVID pandemic will end on December 31, 2025. If you qualify for savings in 2026, you'll likely pay more for your Marketplace plan premium. Update your application to find out if you qualify for savings and compare plans to find one that meets your needs.
Exploring coverage options for small businesses
Individual coverage Health Reimbursement Arrangements (HRAs)
The individual coverage Health Reimbursement Arrangement (also known as an HRA) is a way for employers to provide tax-free reimbursements to employees for qualified medical expenses up to a set annual amount, including monthly premiums and out-of-pocket costs, without offering traditional group health coverage. To use the funds, employees must have their own individual health insurance plan (like one from the Marketplace).
Can I offer an individual coverage Health Reimbursement Arrangement?
Generally, employers of any size can offer an individual coverage Health Reimbursement Arrangement, if they have at least one employee who isn’t a self-employed business owner or the spouse of a self-employed owner. Health Reimbursement Arrangements are only for employees, not self-employed individuals.
Will I qualify for the Small Business Health Care Tax Credit?
Enrolling in Small Business Health Options Program (SHOP) coverage is generally the only way to qualify for the Small Business Health Care Tax Credit to save you up to 50% of your employer contribution for 2 consecutive years. Learn more about offering traditional group coverage SHOP plans to your employees.
How much can I contribute to my employees’ costs?
You have the flexibility to decide how much you contribute toward your employees’ individual coverage Health Reimbursement Arrangement for each 12-month plan year. There are no annual minimum or maximum contribution requirements.
Think about "affordability" when you make an individual coverage Health Reimbursement Arrangement offer
- How “affordability” is determined: The affordability of your Health Reimbursement Arrangement depends on how much you contribute to the Health Reimbursement Arrangement, your employee's household income, and the cost of the monthly premium of the self-only, lowest cost Silver plan available from the Marketplace that your employee has access to. Employees who have an affordable Health Reimbursement Arrangement offer (or are already covered by one) can’t get the premium tax credit from the Marketplace.
- Get help from these tools:
- Determine the lowest cost Silver plans in your area using the employer affordability tool (XLSM, 3.5 MB).
- Enter some general information about your employees and offer using our Health Reimbursement Arrangement affordability tool to find out how it might affect their eligibility for the premium tax credit.
What’s considered an “affordable” individual coverage Health Reimbursement Arrangement offer?
An individual coverage Health Reimbursement Arrangement is considered affordable if the employee's monthly cost for the self-only, lowest cost Silver plan in their area (after your Health Reimbursement Arrangement reimbursement) is less than 9.96% of 1/12 of the employee’s yearly household income
- If your offer is considered affordable: The employee and their household members won’t be eligible for the premium tax credit on Marketplace coverage, even if they don’t use the Health Reimbursement Arrangement.
- If your offer isn’t considered affordable: The employee can choose between the Health Reimbursement Arrangement or the premium tax credit on Marketplace coverage (but not both). To get the premium tax credit, they must decline your Health Reimbursement Arrangement offer.
How is “affordability” determined?
- When employees apply for Marketplace coverage, they’ll provide information about their individual coverage Health Reimbursement Arrangement offer, including its start date and their employer's contribution amount.
- The Marketplace will then determine if the offer meets “affordability” requirements, which impacts an employee’s eligibility for the premium tax credit.
Employees can also use our Health Reimbursement Arrangement affordability tool before applying to get an estimate of their Health Reimbursement Arrangement’s affordability.
Can my employees use pre-tax dollars to pay the portion of the health plan premiums not covered by an individual coverage Health Reimbursement Arrangement?
Yes, employees can use both a Health Reimbursement Arrangement and pre-tax payroll deductions for health insurance premiums. But, if they want to use pre-tax dollars, they need to buy insurance outside the Marketplace, not through HealthCare.gov.
Which employees are eligible for my individual coverage Health Reimbursement Arrangement offer?
You can offer an individual coverage Health Reimbursement Arrangement to any eligible employee, or you can offer it only to certain types of your employees.
The types or classes of employees can be determined by certain job-based criteria, like:
- Full-time, part-time, or seasonal status
- Employees covered by a collective bargaining agreement
- Salaried or non-salaried (like hourly) employees
- Employees who haven't satisfied a waiting period (like new hires still in their probationary period)
- Non-resident aliens with no U.S.-based income
- Employee work locations
- Any combination of 2 or more employee types listed above
The individual coverage Health Reimbursement Arrangement rules specify the classes — you can't make up your own. Get a full list of available classes (PDF, 408 KB).
Within each employee class, the reimbursement amount you offer can vary based on:
- Age (not to exceed a 3:1 ratio)
- Number of dependents
You can also set a waiting period for new employees, and there's a special rule for new hires. Otherwise, you must offer the individual coverage Health Reimbursement Arrangement on the same terms to all employees in a class.
Can I offer an individual coverage Health Reimbursement Arrangement along with traditional group coverage?
- You can offer certain types of employees a traditional group health plan and other types of employees an individual coverage Health Reimbursement Arrangement.
- You can’t offer the same type of employees a choice between a traditional group health plan and an individual coverage Health Reimbursement Arrangement.
- You can’t combine an individual coverage Health Reimbursement Arrangement with a traditional group health plan or with SHOP coverage. For example, you can offer full-time employees a traditional group health plan and offer part-time employees an individual coverage Health Reimbursement Arrangement.
If you offer both traditional group health plans and individual coverage Health Reimbursement Arrangements to your employees:
- Size requirements, as shown in the table below, may apply to certain employee classes getting Health Reimbursement Arrangements
- These requirements make sure there is proper separation between benefit types
| Size of employer | Class size minimum |
|---|---|
| Less than 100 employees | 10 employees |
| 100–200 employees | 10% of the total number of employees |
| More than 200 employees | 20 employees |
If you don't offer a traditional group health plan to any of your employees, these class size minimums don't apply.
How to start an individual coverage Health Reimbursement Arrangement
- Decide when to start. You can set up an individual coverage Health Reimbursement Arrangement at any time. Think about how your employees can get individual health insurance coverage when you pick a start date for your individual coverage Health Reimbursement Arrangement’s plan year. For example:
- January 1 start date allows employees to choose coverage during the individual market’s annual , and in most cases, deductibles reset on January 1 each year.
- Mid-year changes may qualify employees for a if you're ending a traditional group health plan, offering a Health Reimbursement Arrangement to a new class of employees, or when newly-hired employees become eligible.
- Employees can apply at HealthCare.gov and include information about when their Health Reimbursement Arrangement can start to enroll through a Special Enrollment Period if outside the annual Open Enrollment Period.
Generally, employees will need to submit an application and select a plan in time for it to take effect by the first day that their individual coverage Health Reimbursement Arrangement can start.
- January 1 start date allows employees to choose coverage during the individual market’s annual
- Provide a written letter to new employees as soon as they’re eligible to participate and to current employees 90 days before the start of each plan year. Get a sample Health Reimbursement Arrangement letter to learn what to include (PDF, 93 KB).
- Help employees understand that they need information from the letter to fill out a Marketplace application and check eligibility for Marketplace coverage with savings, or free or low-cost coverage through or the.
- Give employees the opportunity to decline. Employees must be offered the chance to decline the individual coverage Health Reimbursement Arrangement annually before the plan year begins, or when they’re first offered the individual coverage Health Reimbursement Arrangement, if that happens in the middle of the plan year.
Remember: To use their individual coverage Health Reimbursement Arrangement amount, employees must be enrolled in individual health insurance coverage, like:
- A Marketplace plan
- A plan from a private insurance company
- Medicare coverage (Part A and Part B, or Part C)
What’s doesn’t count as individual health insurance coverage:
- Short-term plans
- Other limited benefits coverage, like dental or vision
Get the full requirements (PDF, 408 KB), and understand the reasonable procedures employers must have in place (PDF, 70 KB) to confirm that employees and their households are enrolled in qualifying coverage.
Need help deciding whether an individual coverage Health Reimbursement Arrangement is right for your business?
- Search for a registered agent/broker or trained assister in your area. You may also want to talk with a licensed tax professional or benefits specialist.
- Compare coverage options with our Health Reimbursement Arrangement decision guide. Find out more about how an individual coverage Health Reimbursement Arrangement compares to other products and services that may be available to help you cover your employees.
Employees: Understanding individual coverage Health Reimbursement Arrangements
- If you’re an employee who has been offered an individual coverage Health Reimbursement Arrangement by your employer, learn more about individual coverage Health Reimbursement Arrangements and the Marketplace.
- Determine your next steps with our Health Reimbursement Arrangement affordability tool.