Is an Excepted Benefit HRA (EBHRA) a Smart Move for Your Business?

There are many kinds of tax-advantaged accounts or arrangements business owners can sponsor to help employees pay eligible medical expenses. One option worth considering is a Health Reimbursement Arrangement (HRA) — specifically, the Excepted Benefit HRA (EBHRA).

An HRA allows your company to reimburse employees for qualified medical expenses, and the entire plan is employer-funded, meaning your employees can’t contribute, and your business gets a tax deduction for every dollar you reimburse.

So why consider an EBHRA in particular? One word: FLEXIBILITY.

What Makes EBHRAs Stand Out?

EBHRAs are designed to supplement your group health plan without triggering all the regulatory requirements of the Affordable Care Act (ACA). They’re exempt from mandates like covering essential health benefits and certain preventive services — as long as you follow a few key rules.

What are the key rules? Let’s walk through them.

1. Contribution Limits (2025 Update)

You can contribute up to $2,150 per employee for the plan year. You don’t have to contribute the full amount, and you’re allowed to offer carryovers from year to year. A bonus: the carryovers don’t count against the annual cap.

2. What Can Be Reimbursed?

EBHRAs can cover most out-of-pocket medical expenses, but not premiums for:

• Individual health coverage,

• Medicare, or

• Non-COBRA group plans.

However, premiums for certain “excepted” coverages like: dental, vision, and short-term limited-duration insurance (STLDI) can be reimbursed (unless restricted by your state).

3. Required Health Plan Access

To offer an EBHRA, your business must also provide a traditional group health plan. That means this isn’t a stand-alone benefit, and you can’t offer both a traditional HRA and an EBHRA at the same time.

4. Equal Access

You must offer the EBHRA to all similarly situated employees on the same terms. Discriminating in favor of select employees isn’t allowed.

Compliance Considerations

Although EBHRAs are excluded from many ACA and HIPAA requirements, there are still some boxes to check:

• HIPAA privacy and security rules may apply (unless your plan qualifies for an exception).

• EBHRAs fall under ERISA, so you’ll need to issue a Summary Plan Description and follow claim/appeal protocols.

• You must also comply with ERISA’s nondiscrimination rules, ensuring the benefit doesn’t favor highly compensated employees disproportionately.

Making the Right Choice for Your Business

EBHRAs are just one of several options available; others include traditional HRAs, qualified small employer HRAs (QSEHRAs), and individual coverage HRAs (ICHRAs). Deciding whether to offer one (and which one) depends on a number of factors:

• Your existing health benefits

• Employee demographics

• Budget flexibility

• Types of expenses you’re willing to reimburse

Considering it? Let’s take a deeper look together. We can help you weigh the costs, navigate the compliance issues, and determine whether an HRA — or another benefit strategy — aligns best with your business goals.