That's where the confusion starts. The rules on group-plan availability, enrollment, reimbursable expenses, annual limits and other HRAs are easy to mix up, and a design built on the wrong assumption can create compliance problems.
This guide walks through how an EBHRA works, from employer setup to employee reimbursement. It covers eligibility, plan design, compliance controls, and when a different HRA is the better fit.
Key Takeaways
- Employers must offer a traditional group health plan, but employees don't have to enroll in it.
- EBHRAs are employer-funded and reimburse only what the plan document allows.
- For plan years beginning in 2026, the annual limit is $2,200 per employee.
- Don't transfer funds between EBHRAs, ICHRAs, QSEHRAs, GCHRAs, HSAs, or FSAs; each follows different rules.
What Is an Excepted Benefit HRA (EBHRA)?
An EBHRA is a limited-dollar, employer-funded health reimbursement arrangement. When the plan meets federal requirements, reimbursements for qualifying medical expenses are generally tax-free.
The framework comes from the 2019 final rule. It lets an employer add a controlled supplemental benefit to a group plan without using the account as a substitute for major medical coverage.
Excepted-benefit categories
Federal rules recognize several excepted benefits. Each has its own conditions:
- Accident-only coverage
- Qualifying limited-scope dental and vision coverage
- Qualifying specified-disease coverage
- Qualifying separate-policy Medicare supplemental (Medigap) coverage
The label doesn't limit what the account can reimburse. Section 213(d) medical expenses, such as copays and deductibles, can qualify if the plan allows them.
What an EBHRA is not
It is not comprehensive coverage, and federal rules restrict which premiums it can pay:
| Premium category | EBHRA treatment |
|---|---|
| Individual major medical insurance | Prohibited |
| Non-excepted group coverage (other than COBRA or continuation coverage) | Prohibited |
| Medicare Parts A, B, C and D | Prohibited |
| COBRA or other continuation coverage | Permitted |
| Coverage consisting solely of excepted benefits, including qualifying dental, vision and separate-policy Medigap | Permitted |
| Short-term, limited-duration insurance | Generally permitted, with a narrow small-employer restriction |
Note the Medigap point. There is no blanket Medigap ban. Qualifying separate-policy Medigap is an excepted benefit. Medicare Parts A through D are what's off limits.
One category, many designs
Federal rules define a single EBHRA category, not separate statutory "types." Employers customize the design instead:
- Eligible expense categories
- Allowance amount, within the cap
- Employee classes, as the rules permit
- Substantiation process
- Rollover or forfeiture approach
The annual dollar cap is a practical draw: employers get tighter spending control than with an uncapped design.
How Does an EBHRA Work?
The process runs in sequence:
- The employer adopts a compliant plan and offers it alongside qualifying group coverage
- Employees incur eligible expenses and submit documentation
- Approved expenses are reimbursed up to the available balance
Initiation and employer eligibility
Federal rules set no employer-size ceiling, but the plan must meet four conditions:
- Other coverage is offered. The same employer offers non-excepted group coverage that isn't itself an HRA. Employees don't have to enroll.
- New funding stays under the cap. The 2026 ceiling is $2,200.
- Premium restrictions apply. Prohibited premiums are excluded from reimbursement.
- Terms are uniform. Similarly situated employees get the same terms, regardless of health factors.
Bona fide employment classifications can define who is covered, including full-time versus part-time status, geography, bargaining unit and occupation.
The plan document should settle the covered groups, effective date, funding method, eligible expenses, substantiation rules, carryover or forfeiture, and coordination with other benefits.
Core operation and reimbursement
Once an employee submits documentation for an eligible expense, the plan administrator reviews it and reimburses the approved amount from the account. The employee never receives unrestricted cash. A right to cash would defeat the tax exclusion.
Eligible examples include:
- Copays, deductibles and coinsurance
- Dental treatment, eye exams and medically necessary eyeglasses
- Premiums for permitted excepted-benefit coverage
The plan document can be narrower than federal law allows. Funding is employer-only, with no salary reductions. Reimbursements for qualifying expenses are generally excluded from income, but confirm tax treatment with benefits or tax counsel.
Regulation and compliance controls
The annual limit is indexed. Rev. Proc. 2025-19 sets $2,200 newly available for plan years beginning in 2026. That's up from $2,150 in 2025 and $2,100 in 2024. The limit applies the same way regardless of coverage tier or number of dependents.
Key coordination and administrative points:
- Multiple HRAs: Amounts for the same period are aggregated under the cap. Arrangements that reimburse only excepted benefits are excluded.
- ICHRA: An employer can't offer an EBHRA and an ICHRA to the same employee.
- ERISA: Plans generally need a written plan document, a summary plan description, and reasonable claims and appeals procedures.
- HIPAA: Privacy and security rules apply to group health plans, including those with 50 or more participants or outside administration.
- Nondiscrimination and COBRA: Section 105(h) rules apply to self-insured reimbursement plans, and HRAs are generally subject to COBRA where it applies.
- HSAs: General-purpose HRA coverage generally blocks HSA contributions. Limited-purpose designs may preserve eligibility.
- Health FSAs: No duplicate reimbursement of the same expense.
- Premium tax credits: Excepted-benefit coverage isn't minimum essential coverage, so it doesn't bar the credit by itself. A separate affordable group-plan offer can.
Reimbursement, rollover and unused funds
Employees receive reimbursement for approved expenses up to the available balance. Carryover is permitted but not required. If the plan allows it, carried-over amounts don't count against the next year's newly available limit. A plan can also forfeit unused funds.
Keep records of eligibility, substantiation, reimbursements and limit monitoring. Non-ERISA plans also owe participants a notice within 90 days of participation and annually afterward.
Where an EBHRA Fits for Employers
An EBHRA works best next to a traditional group medical plan. It helps with deductibles, copays, coinsurance and permitted ancillary premiums without touching the primary plan.
Situations worth evaluating:
- You want a defined, capped supplemental benefit.
- Some employees have other primary coverage and decline yours.
- You want reimbursement flexibility without adopting an ICHRA.
Choosing among HRA designs
| Arrangement | Group plan offer | Employee coverage | Contribution limit (2026) |
|---|---|---|---|
| EBHRA | Required | Enrollment not required | $2,200 |
| ICHRA | Not to the same employees | Qualifying individual coverage or Medicare | No federal cap |
| QSEHRA | None to any employee | Minimum essential coverage | $6,450 self-only / $13,100 family |
| Group-integrated HRA | Required | Enrollment in qualifying group coverage | No HRA-specific federal cap |
QSEHRA is also limited to employers that aren't applicable large employers. Keep health FSAs separate in your analysis: their employee salary-reduction cap is $3,400 for 2026, and that figure is not an EBHRA limit.
Muneris Benefits, an independent agency in Roanoke and Narrows, Virginia, works with employers on HRA design, coordination with existing coverage, and billing, claims, COBRA and ACA compliance questions. Get legal or tax counsel for formal compliance determinations.
Conclusion
An EBHRA pairs a capped, employer-funded reimbursement account with an offer of traditional group coverage. Employees submit documentation, and the plan reimburses permitted expenses.
Before adopting one, review:
- The current IRS limit
- Plan-document requirements
- Coordination with other benefits
- What your employees need
If an EBHRA is not the right fit, another HRA design may serve your organization better.
Frequently Asked Questions
What two conditions must an employer meet to provide a QSEHRA?
The employer must not be an applicable large employer (generally 50 or more full-time employees, including equivalents) and must not offer a group health plan to any employee. QSEHRA rules are separate and don't determine EBHRA eligibility.
What expenses are eligible for HRA reimbursement in 2026?
It depends on the HRA type and the plan document. For EBHRAs, plan-permitted section 213(d) medical expenses qualify, minus the prohibited premiums. See IRS Publication 969 for current guidance.
What is an EBHRA and how does it work?
It's an employer-funded supplemental reimbursement arrangement offered alongside group health coverage. Employees submit substantiated expenses, and the plan reimburses approved amounts up to the available balance.
Do employees have to enroll in the employer's group health plan to use an EBHRA?
No. The employer must offer the group plan, but employees can decline it and still participate. Review the plan's own eligibility terms.
Can an EBHRA reimburse individual health insurance or Medicare premiums?
Not individual major medical premiums or Medicare Parts A through D. COBRA and qualifying excepted-benefit premiums, including qualifying Medigap, are permitted. Verify current federal rules.
How does an EBHRA differ from a GCHRA or ICHRA?
An EBHRA requires a group-plan offer, not enrollment, and supplements primary coverage under a $2,200 cap. A GCHRA requires actual group enrollment. An ICHRA replaces the group plan with individual coverage and has no federal cap.
