Traditional HRAs Explained: Coverage, Limitations, and What to Add
Key Takeaways
- A traditional health reimbursement arrangement (HRA) reimburses employees tax-free for deductibles, copays, and coinsurance under a group health plan, but the employer funds and owns the account, unlike an HSA.
- Reimbursement through a traditional HRA changes who pays for an out-of-pocket expense without influencing which provider an employee sees, and provider choice is where most of a plan's controllable cost lives.
- Pairing a traditional HRA with a provider-steering incentive works both sides of the cost equation, softening what employees pay while shrinking the underlying claims themselves.
Plenty of employers put an HRA in place and consider the cost problem handled. A traditional HRA is genuinely useful, reimbursing employees tax-free for the deductibles, copays, and coinsurance their group health plan does not fully cover. But covering those costs is not the same thing as controlling them.
An HRA changes who pays for a claim. It has no say in which doctor generated the claim or what the care should have cost, and that blind spot matters, because the claim itself is where most of a plan's controllable spending lives.
What traditional HRAs cover
A traditional health reimbursement arrangement is an employer-funded account that reimburses employees, tax-free, for eligible medical expenses their group health plan does not fully cover, including deductibles, copays, and coinsurance. Because it must be paired with a group health plan, the IRS treats it as integrated with that coverage rather than as a standalone benefit.
Ownership is what separates it from an HSA. Employees fund and keep an HSA, while the employer funds an HRA entirely, and unused balances typically stay with the employer when an employee leaves, at the employer's discretion. That structure keeps the employer's exposure predictable, because the employer only spends what employees actually claim.
Eligible expenses and how reimbursement works
The reimbursement process has three steps. The employer sets an annual allowance for each employee, the employee incurs an eligible expense and submits documentation, and the employer reimburses the cost up to that allowance. Anything unclaimed at year-end either rolls over or expires, depending on plan design.
Eligible expenses come from IRS Publication 502, which covers deductibles, copays, coinsurance, prescriptions, and a long list of qualifying medical services. Employers do not have to reimburse everything on that list, though. Within those boundaries, an employer can go as narrow as deductible expenses only or as broad as anything in the publication, which makes the allowance and the eligible-expense list the two real levers of plan design.
How a traditional HRA differs from ICHRA, QSEHRA, and EBHRA
The differences come down to what each one can be paired with. A traditional, or integrated, HRA must sit alongside a group health plan. An individual coverage HRA (ICHRA) instead reimburses employees who buy their own individual-market coverage, a qualified small employer HRA (QSEHRA) does the same for employers with fewer than 50 full-time employees, and an excepted benefit HRA (EBHRA) supplements a group plan but only for limited excepted benefits like dental and vision, under rules outlined by CMS.
Traditional HRAs are a small but steady piece of the employer market. In the 2025 KFF Employer Health Benefits Survey, 4% of covered workers were enrolled in a high-deductible plan paired with an HRA, a subset of the 33% enrolled in high-deductible plans with a savings option of some kind.
What traditional HRAs miss
Reimbursement is a payment mechanism, and payment mechanisms do not manage cost. A traditional HRA changes who pays for an out-of-pocket expense without changing whether that expense was necessary or whether a better doctor was available for the money. The HRA pays whatever eligible claim arrives, regardless of which provider produced it or how that provider's cost and quality compare to others in the same network. It has no mechanism to influence that choice, and the choice is where the money is.
Two doctors in the same network can charge very different prices for the same procedure with no corresponding difference in quality, and just because a provider has a recognizable brand name doesn’t mean they actually provide higher quality care. The choice of doctor matters long after the first bill. A bad one means complications, repeat procedures, and more care down the line, and the plan picks up every one of those bills. An HRA does nothing about any of that. It cushions the employee's share of the cost while the full claim flows through the plan untouched.
The research on cost exposure backs this up. According to a study published in the Quarterly Journal of Economics, when a large employer moved its workforce into high-deductible coverage, employees cut spending by cutting care across the board, trimming preventive services alongside wasteful ones, and showed no sign of learning to shop on price even after two years. Cost exposure changed how much care people used, but did nothing to improve where they got it. A traditional HRA pulls the same lever in the opposite direction, easing cost exposure without telling employees anything about which doctors are worth seeing.
What to stack with a traditional HRA
The solution is to pair the HRA with something that actively steers employees toward higher-quality, lower-cost providers. An HRA reduces the financial pain of a given expense, while a provider-steering incentive reduces the odds that the expense was avoidable or overpriced in the first place. So the two work on different parts of the cost equation.
Employers have chased that steering effect before, most visibly through high-performance networks that limit coverage to a subset of providers. Those models can work, but they require plan changes and restrict choice, which is why more employers are turning to incentives that shift demand toward better providers rather than restricting supply.
Garner takes the incentive approach. It works as an overlay on top of any existing plan, including an HRA. Provider-level quality and cost data identify the best-performing doctors already in the network, and employees get a financial incentive, such as $0 out-of-pocket costs, to see one of those Top Providers. No network changes are required, because the incentive operates entirely within the network the employer already has.
That difference shows up in the claims. An independent Aon analysis of employers using Garner found that eligible members spent 7.4% less on medical care in their first year than a matched control group, about $345 less per member, without plan design changes and with richer benefits for the employees who participated.
Choosing the right approach for your plan
The choice gets easier once you keep the two jobs separate. A traditional HRA manages who pays for out-of-pocket costs, and it does that job well, but it does not manage which provider generated those costs, and only the second job bends a cost trend.
That points to one clear next step. Look at your current benefits strategy and ask whether anything in it actively influences which doctor an employee chooses, or whether the strategy amounts to reimbursement alone. If the honest answer is reimbursement alone, the plan is absorbing claims it could be shrinking.
An HRA helps employees pay the bill. Garner helps keep the bill smaller in the first place. Book a demo to see how the two work together.
FAQs
What is a traditional HRA?
A traditional health reimbursement arrangement (HRA) is an employer-funded benefit that reimburses employees, tax-free, for out-of-pocket medical expenses their group health plan does not fully cover, such as deductibles, copays, and coinsurance. It must be paired with a group health plan, which is why it is also called an integrated or group coverage HRA. The employer owns the account, sets the annual allowance, and typically keeps unused balances when employees leave.
What expenses can a traditional HRA reimburse?
A traditional HRA can reimburse the medical expenses listed in IRS Publication 502, including deductibles, copays, coinsurance, prescriptions, and many medical services. Employers can define eligible expenses more narrowly than the IRS list allows, so some plans reimburse only deductible expenses while others cover the full range. Premiums for the group health plan itself are generally not reimbursable through a traditional HRA.
What is the difference between a traditional HRA and an ICHRA?
A traditional HRA must be paired with an employer's group health plan and reimburses out-of-pocket costs under that plan, while an individual coverage HRA (ICHRA) replaces group coverage by reimbursing employees for premiums and expenses on individual-market plans they buy themselves. The traditional model keeps everyone on one group plan, whereas an ICHRA shifts plan selection to each employee. An employer cannot offer the same class of employees both a group plan and an ICHRA.
Does an HRA lower an employer's overall healthcare costs?
Not by itself. An HRA lowers what employees pay out of pocket, but the full cost of each claim still flows through the health plan, so total spending is unchanged unless something influences the care itself. Research on cost-sharing shows that shifting who pays does not lead people to choose better or lower-priced providers. Employers that want lower total costs typically pair an HRA with an incentive that steers employees toward the best-performing doctors in their network.