As health insurance prices climb, HRAs offer small businesses a flexible option | Expert Opinion

Finding and retaining employees remains a top concern among small-business owners, and offering affordable healthcare benefits continues to be a significant challenge. Because of this, health reimbursement arrangements, or HRAs, have become more popular.

Simply put, an HRA allows an employer (or an employee) to make tax-free (and tax-deductible to the employer) contributions to an individual’s HRA account.

The employee can use those funds to reimburse uncovered healthcare expenses or purchase their own health insurance, either from outside brokers or on the Pennsylvania, New Jersey or Delaware healthcare marketplaces.

A small business can consider a few different HRA options.

A general HRA is funded entirely by just the employer and often used alongside existing group insurance plans to help reimburse expenses not covered by their existing insurance. These expenses could include co-pays, over-the-counter medication, or even dental and vision care.

Alternatively, health savings accounts (HSAs) allow employees to contribute pretax dollars for the same purpose.

“An employer can buy a high-deductible group plan, then use HRA funds to cover part of that deductible,” said Robert Deninno, a founding principal of Precision Benefits Group in Philadelphia. “The appeal is that unused HRA money remains with the employer, unlike HSA funds, which belong to the employee.”

Deninno said employers can use HRA language to fill in specific gaps in a group plan, such as hospital costs, rather than paying a much higher premium for a richer underlying plan.

An individual coverage HRA (ICHRA) allows employers to reimburse employees for premiums on health insurance the employee independently purchases.

A qualified small-employer HRA (QSEHRA) is designed specifically for businesses with fewer than 50 employees that do not offer a group plan. It is more formalized and is similar to an ICHRA.

These arrangements give employers wide discretion, said Ed MacConnell, owner of Total Benefits Solutions in Feasterville.

“Employers can determine reimbursement levels, caps, frequency, and categories,” MacConnell said. ”That matters because most employers are trying to balance two competing goals: doing right by employees while staying within budget.”

Many people assume employers just want the cheapest plan possible, MacConnell said, but in his experience the opposite is usually true.

“Most employers genuinely care about how their choices affect employees and their families,” he said. “HRAs can help by letting them target limited dollars more intentionally.”

All of these plans have their nuances and it’s best to speak with a health benefits consultant or your payroll company to determine what’s best for your business.

You won’t be alone. ICHRAs alone grew 52% among small employers from 2024 to 2025 with 83% of employers who previously didn’t offer health insurance options now offering either ICHRAs or QSEHRAs, according to a recent report from the HRA Council, an advocacy organization.

That surge in popularity is because offering HRAs — in addition to or in lieu of group coverage — provides an employer with three significant benefits.

The first is cost control. The cost of group insurance is expected to rise as much as 10% in 2026, but with an HRA, an employer can contribute whatever amount they can afford, unbeholden to the insurance company’s premiums. With certain HRA plans, an employer no longer has to negotiate with a group insurance provider, and is less exposed to potential privacy violations of an employee’s health history.

“The employer can decide what to reimburse, how much to reimburse, and under what limits,” MacConnell said. “This flexibility makes HRAs attractive to smaller employers that want to start somewhere rather than do nothing.”

Another benefit: because an employee can use these funds to purchase their own insurance, they’re no longer limited to the options their employer offers and they may be able to buy more affordable or more suitable plans.

Finally, there’s the recruiting benefit. Offering an HRA plan allows small businesses to have a response when a prospective employee inevitably asks about health benefits. By contributing even a nominal amount — and allowing an employee to contribute their own pretax dollars — a small business has a healthcare benefit option and becomes more competitive when pursuing talent.

There are challenges with these types of plans. For example, administration can be messy, especially as the company grows or employee situations become more diverse.

“If 10 employees buy 10 different plans, the employer and broker lose the efficiencies that come with one group carrier and one group policy,” said Deninno. “When employees are scattered across different individual plans, it becomes much harder to resolve claims problems or coverage issues.”

MacConnell emphasizes the need for a third-party administrator, particularly when a company exceeds 10 to 15 employees.

“Outsourcing becomes worthwhile when the alternative is tracking many different employees, many different plans, and constant premium changes,” he said.

For HRAs to work well, it’s also important to educate employees and make sure it fits the company culture. Experts recommend meeting frequently and providing employees with as much support as possible.

“A good broker or administrator will act as a coworker with your employees,” said MacConnell. “They should help both employers and their employees choose the right plans, answer questions, and act as an advocate.”