Can Employers Legally Reimburse Health Insurance?

Yes, employers can legally reimburse employees for health insurance, but only through specific IRS-approved arrangements. Informal reimbursements create tax complications, while formal Health Reimbursement Arrangements offer compliant, tax-advantaged solutions that benefit everyone involved.

If you're an HR leader or benefits broker exploring legal health insurance reimbursement options, understanding the framework will help you make confident decisions for your organization.

How Legal Health Insurance Reimbursement Works

The IRS allows employer-paid health insurance reimbursement, but the method matters significantly. Informal cash reimbursements get treated as taxable income, meaning payroll taxes for you and income taxes for your employees. Formal HRA programs, however, allow tax-free reimbursements when structured correctly.

According to the HRA Council's 2024 Annual Report, ICHRA adoption has grown more than 1,000% since 2020, when the program first became available. Adoption surged 29% in 2024 alone, with large employers leading growth at an 84% increase. This momentum reflects growing employer confidence in reimbursement-based benefits.

Three main options exist for legal guidelines for health reimbursements. ICHRA (Individual Coverage Health Reimbursement Arrangement) is available to employers of all sizes with no contribution limits. QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) is designed for small employers with fewer than 50 employees. EBHRA (Excepted Benefit HRA) supplements existing group coverage with limited reimbursements.

Health Reimbursement Arrangement Rules You Need to Know

Health reimbursement arrangement (HRA) rules require following specific IRS guidelines to maintain tax-advantaged status. All HRA programs operate on a reimbursement model, meaning you cannot pay directly for employee insurance. Employees pay their premiums first, then submit claims for reimbursement.

Compliance requirements span multiple regulatory frameworks. You'll need to follow ERISA, HIPAA, and ACA regulations while providing proper plan documents to participants. Maintaining records of all reimbursements is essential, and you must offer COBRA coverage when applicable.

Understanding these rules up front prevents costly compliance issues later. Working with an experienced HRA administrator simplifies the process considerably and keeps you focused on your core business.

ICHRA: The Flexible Option for Any Employer

The Individual Coverage Health Reimbursement Arrangement stands out for its flexibility. Companies of any size can offer an ICHRA, and there's no cap on contribution amounts. You set your own monthly allowance based on budget and employee needs, giving you complete control over healthcare spending.

What makes ICHRA appealing to both SMB and enterprise companies is the combination of freedom and structure. There are no minimum or maximum contribution requirements, and you can vary contributions by employee class based on factors like geography or job category. Your employees choose their own individual health plans, creating personalized coverage while you maintain budget predictability.

Employees must maintain individual health insurance coverage to participate in an ICHRA. The arrangement works alongside Medicare and Marketplace coverage, giving workers options regardless of their life stage. For 2025, nearly 70% of employees selected Gold or Silver-tier Marketplace plans through their HRA contributions.

QSEHRA: Built for Small Employers

The Qualified Small Employer Health Reimbursement Arrangement works specifically for companies with fewer than 50 full-time equivalent employees. Congress created QSEHRAs through the 21st Century Cures Act in 2016, giving small businesses a compliant path to legal health insurance reimbursement.

For 2025, the IRS set annual QSEHRA limits at $6,350 for individual coverage and $12,800 for family coverage. Monthly, that translates to $529.16 and $1,066.66, respectively. You must offer the same terms to all eligible employees, and participants need minimum essential coverage.

For startups without the budget for group plans, QSEHRA provides a straightforward way to offer meaningful health benefits without the administrative burden of traditional insurance.

Why the Shift Toward HRAs?

The move toward defined contribution health benefits reflects changing employer priorities. Traditional group plans lock you into specific networks and annual premium increases you can't control. HRAs give you budget predictability while offering employees personalized coverage choices.

The employer-paid health insurance reimbursement model delivers real advantages. You set fixed monthly amounts that fit your budget. Workers select plans matching their needs, whether that's a lower-premium option for healthy employees or comprehensive coverage for someone managing a chronic condition. About 92% of employers offering HRAs continue year after year, signaling strong satisfaction with the approach.

For brokers advising clients on HRA implementation, the key considerations include company size, growth trajectory, current benefits offerings, budget constraints, and state-specific insurance market conditions. The right platform handles compliance and claims processing, freeing you to focus on strategic relationships.

How Venteur Makes HRA Administration Simple

At Venteur, we offer a comprehensive ICHRA platform designed for companies across all 50 states. Our user-friendly system handles the complexity of HRA administration, from plan design through ongoing compliance management. You get the benefits of legal guidelines for health reimbursements without the headaches.

What sets us apart is that we have no setup fees or monthly minimums, making ICHRA accessible regardless of your company size. The platform integrates with existing HR and payroll systems while providing dedicated support for both you and your employees as they navigate benefits options. We handle the compliance details so you can focus on building a workplace where people want to stay.

Moving Forward With Confidence

Health reimbursement arrangement (HRA) rules create a clear path for offering compliant, tax-advantaged benefits. These programs provide budget predictability and employee flexibility that traditional group plans simply cannot match. With proper administration and compliance support, you can confidently offer reimbursement-based health benefits that attract and retain the talent your organization needs.