Excepted Benefit HRA Explained

An Excepted Benefit HRA (EBHRA) is a specific category of Health Reimbursement Arrangement established under final rules issued jointly by the IRS, the Department of Labor, and the Department of Health and Human Services in June 2019. It allows employers to reimburse workers for a defined set of limited health expenses without triggering the ACA's group health plan integration requirements. Understanding its design constraints, permitted uses, and limits helps employers and benefits administrators determine where it fits within a broader health savings overview.

Definition and scope

The EBHRA was created under final regulations published at 84 Fed. Reg. 28888 (IRS TD 9867), effective for plan years beginning on or after January 1, 2020. Regulators designed it as an "excepted benefit," a classification established under the Health Insurance Portability and Accountability Act (HIPAA) and codified in the Internal Revenue Code at §9831 and the Employee Retirement Income Security Act (ERISA) at §732.

Excepted benefits occupy a formal legal category: they are group health plan benefits that are exempt from the primary ACA market reform requirements — including the prohibition on annual dollar limits and the preventive care mandate — because their scope is narrow enough that they cannot serve as a substitute for comprehensive coverage. The EBHRA sits within this classification alongside dental-only and vision-only plans.

The annual reimbursement limit for an EBHRA is set by the IRS and adjusted periodically. For 2024, the IRS set the EBHRA limit at $2,100 per employee (IRS Revenue Procedure 2023-29). This cap applies uniformly regardless of an employee's family size.

A useful comparison to draw is between the EBHRA and the ICHRA (Individual Coverage HRA). Both are employer-funded arrangements created by the same 2019 final rules. The ICHRA can reimburse individual market premiums and has no dollar cap, but it cannot coexist with a traditional group health plan offered to the same class of employees. The EBHRA, by contrast, explicitly requires that the employer also offer a traditional group health plan — and the EBHRA can run alongside that plan. In exchange, the EBHRA is capped at the annual dollar limit and restricted to a narrower set of expenses.

How it works

An EBHRA functions as an employer-established, employer-funded account. Employees cannot contribute to it, and no salary reduction mechanism applies. The employer sets the benefit amount up to the annual IRS cap and reimburses eligible expenses on a substantiated, claim-by-claim basis or through a debit card arrangement. The process follows a structured sequence:

1. Plan establishment: The employer adopts a written plan document satisfying ERISA's formal requirements. The EBHRA must be offered on the same terms to all employees within a class, subject to HIPAA nondiscrimination rules.
2. Eligibility gate: The employer must offer a traditional group health plan to the same employees to whom the EBHRA is offered. Employees who decline the group plan can still participate in the EBHRA — this is a key design feature.
3. Expense submission: Employees submit claims with substantiation (receipts, explanation of benefits) for expenses falling within the permitted category list.
4. Reimbursement: The employer reimburses from the EBHRA up to the annual limit. Unused funds may carry over at the employer's discretion, but carry-over amounts count against the next year's limit.
5. COBRA and continuation: Because the EBHRA is a group health plan under ERISA, COBRA continuation rights apply when a qualifying event occurs.

Permitted expenses under an EBHRA include premiums for excepted benefit coverage (dental, vision, short-term limited-duration insurance, and similar policies) and other IRC §213(d) medical expenses. The EBHRA cannot reimburse premiums for individual market health insurance or Medicare premiums — those reimbursements are reserved for the ICHRA. For a full picture of how employer-designed HRAs interact with IRS cost-recovery rules, see Regulatory Context for Health Savings.

Common scenarios

Supplemental dental and vision gap coverage: An employer offers a major medical group plan but provides an EBHRA to help employees pay dental or vision premiums if they purchase standalone coverage. The EBHRA reimburses premiums up to the $2,100 annual cap without disturbing the group plan's ACA compliance.

Short-term limited-duration insurance (STLDI) bridge: In geographic markets where employees face high out-of-pocket costs during a plan transition period, an employer may fund an EBHRA that reimburses STLDI premiums. Because STLDI qualifies as excepted benefit coverage, EBHRA reimbursements are permitted.

Flexible supplemental benefit for hourly workforces: An employer with a large hourly workforce is required to offer a group health plan to full-time employees under the ACA employer mandate (applicable to employers with 50 or more full-time equivalents, per IRC §4980H). The employer layers an EBHRA on top, allowing workers who enroll in the group plan — or even those who waive it — to access a defined dollar amount for dental, vision, or other limited medical expenses.

Combination with a limited-purpose FSA: An employee enrolled in the employer's traditional group health plan who holds both an EBHRA and a limited-purpose FSA can coordinate both accounts. The limited-purpose FSA is restricted to dental and vision expenses, and the EBHRA can cover the same category, so employers and plan administrators should define claims-processing priority rules in the plan document to prevent duplication.

Decision boundaries

The EBHRA is the appropriate instrument under a narrow set of conditions. When even one condition falls outside these boundaries, a different arrangement is indicated.

• Require: The employer offers a traditional group health plan to the same employees. If no such plan exists, the EBHRA is not available; the employer should evaluate a QSEHRA (Qualified Small Employer HRA) or an ICHRA.
• Require: The employer intends to keep reimbursements within the annual IRS dollar cap. If the reimbursement need exceeds the cap — for example, to cover individual market premiums fully — the EBHRA is insufficient, and the ICHRA framework applies.
• Prohibit: Using the EBHRA to reimburse individual market major medical premiums. That use is explicitly barred by the 2019 final regulations and constitutes a plan design failure with potential tax consequences.
• Caution: Employers must avoid allowing EBHRA funds to cross-reimburse with a traditional health FSA for the same expense. The IRS substantiation and coordination rules under IRS Rules Governing HRAs govern this boundary.
• Nondiscrimination: The EBHRA must comply with HIPAA's nondiscrimination requirements under 45 CFR §146.121. An employer cannot offer a larger EBHRA benefit to highly compensated employees than to other employees within the same class.

The EBHRA functions most cleanly as a supplemental, employer-funded benefit that adds purchasing flexibility for limited-category expenses on top of an existing group plan — not as a standalone health benefit or a substitute for comprehensive coverage.

References

• IRS TD 9867 — Health Reimbursement Arrangements and Other Account-Based Group Health Plans (84 Fed. Reg. 28888)
• IRS Revenue Procedure 2023-29 (2024 EBHRA limit and inflation adjustments)
• U.S. Department of Labor — Health Reimbursement Arrangements
• U.S. Department of Health and Human Services — HRA Final Rule Overview
• IRS — IRC §9831 (Excepted Benefits)
• IRS — IRC §4980H (Employer Mandate)
• HHS — 45 CFR §146.121 (HIPAA Nondiscrimination)

The law belongs to the people. Georgia v. Public.Resource.Org, 590 U.S. (2020)