March 27, 2026 – By: HUB’s EB Compliance Team – SOURCE: HUB International
An Excepted Benefit HRA (EBHRA) is an employer-funded health reimbursement arrangement that allows employers to reimburse employees, on a tax-free basis, for certain out-of-pocket medical expenses and premiums for excepted benefit coverage. Established under the 2019 tri-agency final rules, EBHRAs have been available for plan years beginning on or after January 1, 2020.
Because an EBHRA is classified as an “excepted benefit,” it is not subject to many of the requirements applicable to traditional group health plans or traditional group health plan HRAs, including the Affordable Care Act’s (ACA) market reform requirements, HIPAA’s portability provisions or mental health parity requirements. These features make EBHRAs an attractive supplemental benefit option for employers of all sizes.
Key requirements
To qualify as an excepted benefit, an EBHRA must satisfy several conditions:
The employer must offer a traditional group health plan. The EBHRA must be made available only to employees who are eligible for the employer’s major medical plan (i.e., non-excepted, non-account-based coverage). However — and this is a critical distinction — the employee does not need to actually enroll in that medical plan to participate in the EBHRA. An employee who waives the employer’s medical plan (for example, because they are covered under a spouse’s plan) may still participate in an EBHRA.
Annual contribution limits apply. As with other account-based plans, the Internal Revenue Service (IRS) adjusts the maximum amount that may be made newly available each plan year. For plan years beginning in 2026, the limit is $2,200 per employee. This limit applies regardless of the tier of coverage (employee only, employee plus spouse, family, etc.) the employee might otherwise enroll in.
EBHRA reimbursements
The scope of reimbursable expenses is a key feature — and common source of confusion with EBHRAs. These arrangements are primarily intended to cover excepted benefit premiums and certain out-of-pocket medical expenses. Permissible reimbursements include:
- Premiums for excepted benefit coverage such as limited-scope dental and vision insurance, long-term care insurance, accident-only coverage, fixed-indemnity plans and critical illness policies
- COBRA premiums
- Short-term, limited-duration insurance (STLDI) premiums
- Cost-sharing amounts such as copayments, deductibles and coinsurance for eligible medical expenses, at the employer’s discretion
Equally important is what the EBHRA cannot reimburse. Impermissible reimbursements include:
- Premiums for individual health insurance coverage
- Premiums for group health plan coverage (other than COBRA)
- Medicare Part B or Part D premiums
Employers should carefully define permissible expenses in the plan document to avoid inadvertently violating these restrictions.
Interaction with other HRAs and the premium tax credit
Employers may offer an EBHRA alongside other HRAs, but doing so introduces complexity due to aggregation rules. Contributions to all HRAs offered by the employer must be combined when applying the EBHRA contribution limit. If not, the EBHRA may lose excepted benefit status. Aggregation rules only apply across HRAs and do not consider contributions to Health Savings Accounts (HSA) or Flexible Spending Accounts (FSA).
For example, assume an employer offers a fully insured major medical plan with a traditional HRA of $1,000 as well as an EBHRA of $2,200. The combined HRA value of $3,200 exceeds the annual EBHRA contribution limit of $2,200. This would cause the EBHRA to lose excepted benefit status, making it subject to the ACA market reforms, which it does not satisfy. The solution is to ensure the combined total of all HRA contributions does not exceed the annual EBHRA contribution limit.
Employers may also not offer both an Individual Coverage HRA (ICHRA) and an EBHRA to the same class of employees. Employers can, however, offer an ICHRA to certain employees (following the allowable classification rules) and a traditional group plan plus an EBHRA to other employees. For example, an employer might offer an ICHRA to employees in State A, and a traditional group plan plus an EBHRA to employees in State B.
Notably, EBHRA participation does not affect an employee’s eligibility for the ACA’s premium tax credit (also referred to as a “subsidy”) under IRC § 36B. This is a significant advantage over the ICHRA, which can disqualify employees from subsidy eligibility. While this may seem like a potential benefit of an EBHRA, it does not paint a full picture of subsidy eligibility, as this will depend in part on whether the employer’s offer of major medical coverage (a requirement when offering an EBHRA) meets the ACA’s affordability and minimum value requirements.
Rollover and forfeiture rules
Unlike health FSAs, EBHRAs are not subject to a statutory “use it or lose it” requirement. Therefore, employers have design flexibility here. The plan may, but is not required to, allow unused amounts to roll over to the following plan year. Alternatively, it may require forfeiture of unused funds at plan year end. When an employer permits rollover, the rolled-over amount does not count against the new plan year’s contribution limit — a meaningful advantage that can increase the benefit’s value to employees over time.
Conclusion
The EBHRA offers employers a flexible, relatively fixed-cost tool for supplementing their benefits package — particularly for dental, vision and other excepted benefit coverages. The EBHRA’s exemption from the ACA’s market reforms and its neutrality with respect to premium tax credit eligibility make it a uniquely versatile arrangement. Next month, HUB will provide more detailed information on the compliance obligations applicable to EBHRAs.
If you have any questions, please contact your HUB advisor. View more compliance articles in our Compliance Directory.
