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Part 13 · Chapter 7

Health Reimbursement Arrangements: HRAs, ICHRAs, QSEHRAs, and Excepted-Benefit HRAs

Law stated as of October 3, 2026 · COBRA, HIPAA, and Welfare Benefits

Scope and status

This chapter covers the account-based reimbursement arrangements: the HRA as a tax vehicle (Code §§105 and 106), the ACA market-reform integration problem that every HRA must solve, the four regulatory and statutory solutions (integration with group coverage, the individual coverage HRA (ICHRA), the excepted-benefit HRA (EBHRA), and the statutory QSEHRA), the retiree-only and post-employment variants, and the ERISA, COBRA, §105(h), and HSA overlays. Indexed figures change annually, and the ICHRA §105(h) and §4980H safe harbors are proposed with reliance authorized, not final — verify before relying on them.

Citations are to primary authority: Code §§105, 106, 125, 223, 4980D, 9831(d), 36B(c)(4), 6051(a)(15), and 6652(o); the 2019 HRA final rules, T.D. 9867, 84 Fed. Reg. 28888 (June 20, 2019) (the ICHRA rule at 26 C.F.R. §54.9802-4, 29 C.F.R. §2590.702-2, and 45 C.F.R. §146.123; the integration rules at 26 C.F.R. §54.9815-2711(d), 29 C.F.R. §2590.715-2711(d), and 45 C.F.R. §147.126(d); the EBHRA rule at 26 C.F.R. §54.9831-1(c)(3)(viii), 29 C.F.R. §2590.732(c)(3)(viii), and 45 C.F.R. §146.145(b)(3)(viii); and the ERISA safe harbor at 29 C.F.R. §2510.3-1(l)); the 2019 proposed §4980H/§105(h) ICHRA rules, 84 Fed. Reg. 51471 (Sept. 30, 2019); and IRS Notices 2002-45, 2013-54, 2015-87, and 2017-67. The Treasury, DOL, and HHS rules are parallel; this chapter cites the Treasury text. Scope/routing: this chapter owns HRA design, documentation, and administration. Related questions are treated elsewhere: ICHRA affordability and §4980H in Part 14 (ACA Employer Mandate and Health Reform) (unit D1 and unit F3), and the §4980D excise-tax mechanics in unit F1; COBRA administration in the COBRA continuation-coverage chapter; retiree HRAs' Medicare coordination, Part D, and the HSA/Medicare traps in the retiree medical and Medicare coordination chapter; health-FSA mechanics in the §125 chapter; and §105(h) testing mechanics in the self-insured-reforms chapter.

Legislative-status caution: As of July 23, 2026, no enacted federal statute codifies the ICHRA or creates a "CHOICE arrangement." The One Big Beautiful Bill Act (Pub. L. 119-21, July 4, 2025) enacted no ICHRA provision; its health "choice" subchapter is limited to the HSA telehealth, bronze/catastrophic, and direct-primary-care changes (§§71306–71308). A House-passed bill (H.R. 6703, Dec. 17, 2025) would have codified the ICHRA as a "CHOICE arrangement," but it had not been enacted by the cutoff. The ICHRA remains a creature of the 2019 regulations. Update (Oct. 3, 2026): in September 2026 the SBA and CMS began calling the ICHRA a "CHOICE Arrangement" in federal outreach. The change is in name only: no statute or regulation changed, and 26 C.F.R. §54.9802-4 still governs. Separately, DOL's regulatory agenda lists an ICHRA amendments project (RIN 1210-AC44, "additional guidance and flexibility" for ICHRAs; proposed-rule stage). No proposal had been published as of Oct. 3, 2026. Agency guidance — informal: SBA/CMS CHOICE Arrangement announcement (Sept. 2026); Unified Agenda, RIN 1210-AC44.

Sections

Part A is shown in full. The other sections are listed by title; their text is available to subscribers.

Part A — The HRA as a Tax Vehicle

A1.What an HRA is

Part 13, ch. 7, § A1

An HRA is an arrangement that (1) is paid for solely by the employer and not through salary reduction or otherwise under a §125 cafeteria plan; (2) reimburses §213(d) medical care expenses of the employee and the employee's spouse and dependents; and (3) provides reimbursements up to a maximum dollar amount per coverage period, with any unused amount carried forward to later periods. Coverage and reimbursements are excluded from income under §106(a) (employer-provided accident or health coverage) and §105(b) (reimbursement of medical care expenses). Statute: Code §§105(b), 106(a); IRS Notice: Notice 2002-45, Part I.

A2.Who may be reimbursed — and the cash-out and beneficiary traps

Part 13, ch. 7, § A2

Reimbursements are excludable for current and former employees (including retirees), their spouses and dependents, the employee's children under age 27 at year-end, and the spouses and dependents of deceased employees. A self-employed individual (sole proprietor or partner) is not an "employee" for §105, and a more-than-2% S-corporation shareholder is treated as a partner. Statute: Code §§105(b), 105(g), 1372; IRS Notice: Notice 2002-45, Part III. An HRA loses the §105(b) exclusion entirely if any person has a right to cash or any other benefit other than medical reimbursement, currently or for any future year — and then all payments to all persons in the year are taxable, including genuine medical reimbursements. The same result follows if unused amounts may be paid to a designated beneficiary who is not the employee's spouse or dependent. IRS Notice: Notice 2002-45, Part II; Rev. Rul.: Rev. Rul. 2006-36 (amplifying Rev. Rul. 2005-24).

A3.Substantiation, timing, and ordering with a health FSA

Part 13, ch. 7, § A3

Each expense must be substantiated. The exclusion applies only to amounts paid to reimburse incurred medical expenses, not to amounts the employee would receive regardless of whether expenses are incurred. An HRA may not reimburse expenses incurred before the HRA existed or before the employee enrolled, or expenses deducted under §213 in a prior year. IRS Notice: Notice 2002-45, Part II; Notice 2017-67, Part H (citing 26 C.F.R. §1.105-2). Where an employee has both an HRA and a §125 health FSA covering the same expenses, the HRA must be exhausted first unless the HRA document, adopted before the FSA plan year begins, makes the HRA available only after the FSA amount is spent. No expense may be reimbursed by both. IRS Notice: Notice 2002-45, Part V. IRS Notice: Notice 2017-67, Q&A-73. The same §1.105-2 reasoning makes that the risk for any HRA that pays without substantiation or advances funds, not only for the bad claims. Practitioner consensus (extension beyond QSEHRAs).

A4.HRAs and the cafeteria plan

Part 13, ch. 7, § A4

Employer HRA credits may not be attributable to salary reduction. Offering an HRA alongside a cafeteria plan does not by itself convert it into salary reduction, but where the HRA is offered only with a salary-reduced plan, the facts and circumstances decide whether the salary reduction is attributable to the HRA. IRS Notice: Notice 2002-45, Part IV. For ICHRAs, the employer may let employees pay the unreimbursed balance of an individual-market premium through the cafeteria plan, but only for coverage purchased off-Exchange. Code §125(f)(3) bars a cafeteria plan from offering a qualified health plan bought through an Exchange. If any participant in an ICHRA class is offered this salary-reduction feature, it must be offered on the same terms to all participants in the class other than former employees. Statute: Code §125(f)(3); Final reg: 26 C.F.R. §54.9802-4(c)(3)(ii); Agency guidance — formal: 84 Fed. Reg. at 28904; 84 Fed. Reg. at 51485–86.

Part B — The Market-Reform Integration Problem

  1. B1Why every HRA must be integrated — and the two group-coverage methodsSubscribers
  2. B2Employer payment plans and the §4980D exposureSubscribers
  3. B3Opt-out, forfeiture at termination, and post-employment useSubscribers
  4. B4Retiree-only HRAs and Medicare premium reimbursementSubscribers

Part C — Individual Coverage HRAs (ICHRAs)

  1. C1The frameworkSubscribers
  2. C2Enrollment in individual coverageSubscribers
  3. C3No choice, and the eleven classesSubscribers
  4. C4Minimum class sizes and the new-hire ruleSubscribers
  5. C5The same-terms requirement and permitted variationSubscribers
  6. C6Opt-out and coverage substantiationSubscribers
  7. C7The notice — timing, content, and the special enrollment periodSubscribers
  8. C8The Medicare variantSubscribers
  9. C9Premium tax credit and employer mandate coordination (chapter; see ACA)Subscribers

Part D — Excepted-Benefit HRAs (EBHRAs)

  1. D1The conditionsSubscribers
  2. D2InteractionsSubscribers

Part E — Qualified Small Employer HRAs (QSEHRAs)

  1. E1Eligible employersSubscribers
  2. E2Eligible employees and the same-terms ruleSubscribers
  3. E3Dollar limitsSubscribers
  4. E4Proof of MEC, the income exclusion, and the failure consequencesSubscribers
  5. E5The 90-day written notice and its penaltySubscribers
  6. E6W-2 reporting and the premium tax creditSubscribers
  7. E7Legal statusSubscribers

Part F — ERISA, COBRA, §105(h), and HSA Overlays

  1. F1ERISA status, plan documents, and the individual-policy safe harborSubscribers
  2. F2COBRASubscribers
  3. F3§105(h) nondiscriminationSubscribers
  4. F4HSA eligibilitySubscribers

The first Part of each chapter is open to everyone. The remaining sections, with their authority and practice points, are available to subscribers and to clients of ERISA Benefits Law Group, PLLC whose engagement includes access.

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