The Small Business Guide to EBHRAs (Excepted Benefit Health Reimbursement Arrangements)

While Excepted Benefit Health Reimbursement Arrangements aren’t for every business, they can be a great way to help make a broader range of health benefits more affordable for employees – while saving taxes at the same time.

This guide will show how offering an EBHRA can help your business save money while still offering a powerful health benefit that helps you attract and retain quality talent, so you can stay competitive with larger companies.

EBHRAs are a way for employers to help with health costs tax-free. 

They let employees use money on dental and vision care, giving workers a say in how they use their health funds while also helping cover costs not always paid by standard health plans.

With an EBHRA, you can offer a better set of health benefits to your team at a more affordable cost — especially if your employees have health insurance from elsewhere, or if they prefer keeping their own plans. 

It opens up more choices for everyone.

Key Takeaways

For free help designing and implementing your EBHRA or any other health plan for your small business, make an appointment with a Personal Benefits Manager.

Introduction to EBHRAs

The acronym EBHRA stands for Excepted Benefit Health Reimbursement Arrangement.

It’s a special health plan that helps employees pay certain medical costs not included in their group health insurance policy with tax-free dollars — including deductibles, copays, and supplemental coverages such as dental and vision care.

To understand how they work, you must understand what an excepted benefit is. 

An excepted benefit is a benefit that is exempt from the generally applicable health insurance requirements under the ACA, such as dental, vision, or accident insurance.

An EBHRA allows employers a way to reimburse workers with tax-free dollars to help them afford a wider array of benefits than they could afford on their own.

Importance of EBHRAs in Modern Benefits Packages

EBHRAs help employees fill in gaps where their traditional group health insurance policies fall short. They help pay for things like copays and deductibles, which means less financial pressure on employees and their families.

How do EBHRAs Work?

EBHRAs are tax-advantaged, employer-funded vehicles that employers may offer alongside a group health insurance plan.

This is an important difference compared to Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), which can only be offered by small businesses with fewer than 50 full-time equivalents (FTEs) that don’t offer group health insurance at all. 

EBHRAs must be accompanied by a group health plan.

However, employees don’t need to join your group health plan to benefit from your EBHRA. Your EBHRA can help them purchase additional supplemental benefits even if they have insurance from a different source, such as a spouse’s employment plan or the VA.

With EBHRAs, you decide how much you will contribute and what specific types of expenses you want your plan to reimburse.

By offering an EBHRA alongside your group health insurance plan, you help workers pay for a broader and more complete set of health-related benefits.

Eligible Expenses under EBHRAs

Out-of-Pocket Medical Expenses

EBHRAs also help with various medical costs. They can pay for copays, prescription drugs, and more. This includes mental health and substance abuse treatment.

Employers decide what medical expenses EBHRAs can cover. They do this to match the plan with what their employees need.

Here are the most important benefits workers can use EBHRA funds for:

EBHRA-Eligible Expenses

1. Dental Coverage:

2. Vision Coverage:

3. COBRA continuation coverage premiums:

4. Short-term Limited Duration Insurance (STLDI):

5. Long-term Care expenses, including:

6. Cost Sharing:

7. Accident Insurance:

8. Disability Insurance premiums

9. Cancer insurance premiums

10. Critical Illness Insurance

11. Other Medical Expenses:

These benefits are designed to supplement traditional group health plans and help employees manage additional healthcare costs.

What’s Not Eligible for an EBHRA?

EBHRAs aren’t designed to cover everything. Items not eligible for reimbursement include:

Employer Contributions and Tax Advantages

For 2026, employers can contribute up to $2,200 in pre-tax dollars to an EBHRA per worker — a $50 increase from the 2025 limit of $2,150, as established by the IRS in Revenue Procedure 2025-19 (released May 1, 2025). 

These contributions are fully deductible to employers as a benefit expense.

EBHRA contributions are not taxable to the employee and are exempt from both payroll taxes and state and federal income taxes, making them a much more tax-efficient way to provide benefits compared to simply giving employees cash to buy benefits on their own.

HRA Contribution Limits: 2025–2026

Enhancing Employee Wellness and Satisfaction

Unlike Flexible Spending Arrangements (FSAs), EBHRAs have no “use-it-or-lose-it” rules. 

If a worker doesn’t use up all their EBHRA funds, that money carries over to the next year. 

In 2026, employees can receive up to $2,200 annually, with unused balances rolling forward — providing strong, consistent support for health costs year after year.

Including an EBHRA in your benefits package shows that your team’s health is a top priority, making you a more attractive and competitive employer in today’s job market.

EBHRA Regulations and Guidelines

Nondiscrimination Rules and ERISA Requirements

EBHRAs have to treat all staff the same, according to U.S.C §105(h).

This includes everyone from the highest earners to lower-paid workers. 

EBHRAs must also meet certain ERISA requirements, including providing workers with a clear summary plan description outlining the plan and its benefits.

HIPAA Compliance and Exceptions

EBHRAs must meet HIPAA rules unless they fall under specific exceptions. 

To maintain compliance, employers need to keep up with required paperwork and reporting, which may include filing Form 5500 if applicable.

HRA Plans at a Glance (2026)

EBHRA Non-Discrimination Rules

If you offer an EBHRA, you must ensure that all eligible employees receive these benefits fairly and uniformly. 

You cannot pick and choose favored employees — you must offer the same benefits to all employees within a given class.

Uniform Availability

You must offer access to EBHRAs under the same terms and conditions to all similarly situated individuals. 

Benefits, contribution amounts, and eligibility criteria must be consistent across all workers in the same class and category within your company.

Classification of Employees

You must classify employees based on bona fide employment-based classifications as defined by HIPAA nondiscrimination rules. 

These classifications can include:

Prohibited Discrimination Criteria

EBHRAs cannot discriminate based on health factors. 

Eligibility and benefits cannot be determined based on an employee’s health status, medical condition, claims experience, receipt of healthcare, medical history, genetic information, evidence of insurability, or disability.

Highly-Compensated Employees

EBHRA rules generally prohibit discrimination in favor of highly compensated individuals. 

The benefit must be offered to rank-and-file employees as well as senior management — or senior managers will lose the tax advantage.

ERISA and HIPAA Requirements

EBHRAs are subject to the Employee Retirement Income Security Act (ERISA) unless an exception applies. 

This includes requirements for claims and appeal procedures, summary plan descriptions, and other ERISA mandates. 

EBHRAs must also comply with HIPAA’s administrative simplification requirements, including privacy and security rules, unless an exception applies.

Employee Onboarding and Education

Employee education and ongoing plan communication are important. 

Employees can’t place value on a benefit they don’t know about or don’t know how to use. 

Make sure your team knows how the EBHRA works, what bills it covers and doesn’t cover, and how to request reimbursement.

At a minimum, implement these employee communication measures:

Hire an HRA Administrator

Most small businesses that don’t have a dedicated HR office don’t try to administer EBHRAs in-house. 

Consider hiring a skilled HRA administrator to work alongside your HSA for America Personal Benefits Manager.

HRA administrators take the compliance workload and stress off small businesses that offer HRAs, including the EBHRA.

By outsourcing HRA administration to professionals, you can focus on your business while making the most for your employees and building a workplace that supports their health and happiness.

Combining EBHRAs With Other Health Benefits and Plans

Smart companies routinely combine EBHRAs with other health benefits. 

For example, you can offer an EBHRA and also contribute to health savings accounts (HSAs) for employees who are enrolled in a qualified high-deductible health plan (HDHP).

However, you cannot offer both an Individual Coverage HRA (ICHRA) and an EBHRA to the same class of employees. 

This ensures that benefits are structured in a way that maintains HSA eligibility for those enrolled in an HDHP without accidentally disqualifying them.

2026 HSA and HDHP Limits for Reference

For plan years beginning in 2026 (per IRS Revenue Procedure 2025-19):

• HSA contribution limit (self-only): $4,400 (up from $4,300 in 2025)
• HSA contribution limit (family): $8,750 (up from $8,550 in 2025)
• HDHP minimum deductible (self-only): $1,700 | (family): $3,400
• HDHP out-of-pocket maximum (self-only): $8,500 | (family): $17,000

Learn More: The Most Effective Health Benefit Strategies For Employers With Fewer Than 50 Employees

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Frequently Asked Questions About EBHRAs

What is the EBHRA contribution limit for 2026? For plan years beginning on or after January 1, 2026, the maximum annual employer contribution to an EBHRA is $2,200 per eligible employee. This is up $50 from the 2025 limit of $2,150. The limit applies to each employee regardless of whether they have self-only or family health coverage — there is no higher limit for employees with dependents.

Does the EBHRA limit apply per employee or per family? The $2,200 limit applies per employee, not per family. While an EBHRA can reimburse eligible expenses for a covered spouse and dependents, the contribution ceiling does not increase based on family size. An employee with a spouse and three children has the same $2,200 annual cap as a single employee.

Do employees have to be enrolled in the company’s group health plan to use the EBHRA? No. Employees do not need to enroll in the employer’s group health plan to participate in an EBHRA. They are eligible even if they have coverage through a spouse’s employer, the VA, or another source. The employer, however, must offer a group health plan — employees just aren’t required to join it.

Can unused EBHRA funds roll over to the next year? Yes. Unlike health FSAs, EBHRAs do not have a “use-it-or-lose-it” rule. Any unused EBHRA balance at the end of a plan year automatically carries over into the following year, giving employees an opportunity to accumulate funds for larger or unexpected health expenses over time.

Can a small business offer an EBHRA if it has fewer than 50 employees? Yes. EBHRAs are available to employers of any size, as long as the employer also offers a group health plan. There is no minimum or maximum employee headcount requirement. This differs from a QSEHRA, which is limited to businesses with fewer than 50 FTEs that do not offer group coverage at all.

Can an employer offer both an EBHRA and an HSA? Yes, with conditions. An employer can offer an EBHRA alongside HSA contributions for employees enrolled in a qualified high-deductible health plan (HDHP). However, the EBHRA must be structured so that it only reimburses excepted benefits — not general out-of-pocket medical expenses — in order to preserve the employee’s HSA eligibility. Employers should work with a benefits advisor to design the EBHRA correctly if HSA compatibility is a goal.

Can an employer offer both an EBHRA and an ICHRA? No. An employer cannot offer both an EBHRA and an Individual Coverage HRA (ICHRA) to the same class of employees. These two HRA types cannot be stacked for the same group. However, different HRA types can be offered to different classes of employees, provided the classifications meet legal requirements.

Can employees use EBHRA funds to pay individual health insurance premiums? No. One of the key restrictions of an EBHRA is that it cannot be used to reimburse premiums for individual health insurance policies, standard group health coverage (outside of COBRA), or Medicare premiums. EBHRAs are limited to excepted benefits such as dental, vision, accident, disability, critical illness, COBRA premiums, and qualifying out-of-pocket medical costs.

Are EBHRA contributions subject to payroll taxes? No. Employer contributions to an EBHRA are exempt from federal income taxes, state income taxes (in most states), and payroll taxes — for both the employer and the employee. This makes EBHRAs significantly more tax-efficient than simply increasing an employee’s salary to help cover health costs.

What happens to an employee’s EBHRA when they leave the company? When an employee separates from the company, they typically lose access to future EBHRA reimbursements. Depending on the plan terms, they may still be able to submit claims for eligible expenses incurred during their period of employment, up to a defined run-out period. Employers should specify the run-out period and termination rules clearly in their Summary Plan Description.

Does an EBHRA require a Summary Plan Description? Yes. Because EBHRAs are subject to ERISA (unless a specific exemption applies), employers are generally required to provide employees with a Summary Plan Description (SPD) that outlines the plan’s terms, eligible expenses, reimbursement procedures, and their rights under the plan. Working with an HRA administrator can help ensure your SPD and other plan documents meet all legal requirements.

How does an EBHRA differ from an FSA? Both are tax-advantaged ways to help employees pay for health costs, but there are key differences. An FSA is funded by the employee (with possible employer contributions), has a “use-it-or-lose-it” rule (with limited carryover), and is not tied to whether the employer offers a group health plan. An EBHRA is funded entirely by the employer, has no use-it-or-lose-it rule, and must be offered alongside a group health plan. EBHRAs are also limited to excepted benefits, while FSAs can cover a broader range of qualified medical expenses.

Conclusion

By offering an EBHRA along with a quality group health insurance plan, you can help your employees afford a wider range of important health benefits than they could on their own.

EBHRAs allow your businesses to reimburse both health costs and out-of-pocket expenses tax-free.

Your HSA for America Personal Benefits Manager can help you design your health benefits package, including finding the most cost-effective health plans available and deciding which HRAs, including the EBHRA, may make the most sense for your organization.

We can also provide your employees with enrollment assistance. We make it easy for you to offer a great set of health benefits to help your employees access the great healthcare they deserve.

What to do Now

If you’re a small business owner or senior manager responsible for your company’s health benefits, or you’re looking for an affordable health plan for yourself and your family, make an appointment with one of our expert Personal Benefits Managers.

We’ll ask you a few questions and help you analyze your needs and budget, and work with you to design the most cost-effective plan for you.

It’s easy, and stress-free, and there’s never a charge for our services. Meanwhile, by leveraging the experience and expertise of an HSA for America Benefits Manager, you can potentially save a great deal of money for your business and employees in plan costs and taxes.

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