What's an Individual Coverage Health Reimbursement Arrangement (HRA)?

As of January 1, 2020, employers can offer employees an individual coverage Health Reimbursement Arrangement (HRA) instead of offering a traditional group health plan. This type of HRA is an alternative to traditional group health plan coverage to reimburse medical expenses, like monthly premiums and out-of-pocket costs such as copayments and deductibles.

  • Note: This page uses the term “individual coverage HRA,” but your employer may call it something else. Read the notice you get from them carefully to make sure you understand the terms of your coverage, including whether it’s an account-based plan that requires you to also enroll in individual health insurance coverage or Medicare.

If your employer offers you an individual coverage HRA and you accept it, you (and your household members, if applicable) must enroll in individual health insurance coverage, or Medicare Parts A (Hospital Insurance) and B (Medical Insurance) or Part C (Medicare Advantage) that starts by the time your individual coverage HRA begins. You can enroll in individual health insurance coverage through the Marketplace or through a private plan outside the Marketplace.

Your employer will ask you to confirm that you (and your household members, if applicable) will be enrolled in individual health insurance coverage or Medicare the whole time you’ll be covered by the individual coverage HRA and each time reimbursement is requested from the individual coverage HRA. They’ll tell you how to confirm this.

Important: Short-term plans and other limited benefits coverage, such as dental or vision-only plans, don’t meet this requirement.

How will I know if my employer offers me an individual coverage HRA?

Generally, your employer must provide a written notice at least 90 days before the start of the individual coverage HRA’s plan year. But if you become eligible during the individual coverage HRA plan year or during the 90 days before the plan year, like if you’re a new employee, you’ll get your notice no later than the first day your individual coverage HRA coverage can start.

When you get this notice, be sure to keep it with other important documents. It includes information you might need for individual coverage enrollment.

If I'm offered an individual coverage HRA, am I still eligible for the premium tax credit?

It depends. If you have an individual coverage HRA offer from an employer, the only way you’ll qualify for a premium tax credit to help pay for Marketplace coverage (and possibly your household members’ coverage, if applicable) is if your employer’s individual coverage HRA isn’t considered affordable, and you opt out of it.

  • For 2020, an individual coverage HRA isn’t considered affordable for an employee if the monthly premium for the lowest-cost Silver plan for self-only coverage in the employee’s area, minus the monthly amount made available to the employee under the individual coverage HRA, is more than 9.78% of 1/12 of the employee’s household income for the tax year. This percentage is indexed yearly.
  • You may pay more than 9.78% of your household income on premiums if you enroll in Marketplace coverage with a spouse or other household members. But affordability is determined only by the amount you’d pay for self-only coverage.
  • If the individual coverage HRA is affordable: You won’t be eligible for the premium tax credit for your Marketplace coverage (and possibly your household members’ coverage, if applicable), even if you opt out of the individual coverage HRA.
  • If the individual coverage HRA isn’t affordable: You must opt out of the individual coverage HRA to qualify for the premium tax credit if you’re otherwise eligible.

Use this worksheet (PDF) to help determine if the individual coverage HRA is or isn’t considered affordable.

Note: If you don’t opt out of your individual coverage HRA, you won’t be eligible for a premium tax credit for your Marketplace coverage, regardless of whether the individual coverage HRA is affordable. Also, if the individual coverage HRA offer covers your household members and you don’t opt out, you won’t be eligible for a premium tax credit for their Marketplace coverage, no matter if it’s affordable.

If you’re not eligible for the premium tax credit because you’re covered by an individual coverage HRA or have an affordable individual coverage HRA offer, you should return to your application and update the amount of advance payments of the premium tax credit (APTC) you apply to your monthly premiums to $0.

May I use my individual coverage HRA for Marketplace coverage if my employer offers me a cafeteria plan?

If your employer allows you to pay on a pre-tax basis the portion of the individual health insurance premiums not covered by an individual coverage HRA using a salary reduction arrangement under a cafeteria plan, you can’t use it to pay for Marketplace coverage.

You can still use the individual coverage HRA to buy individual health insurance coverage, but you’ll need to purchase coverage off the Marketplace to use your individual coverage HRA and make salary reduction contributions to a cafeteria plan. If your individual coverage HRA isn’t considered affordable and you want to apply for APTCs with Marketplace coverage instead, then you’ll need to opt out of your individual coverage HRA and decline to use a salary reduction arrangement to pay for health insurance premiums in order to qualify.

I got an individual coverage HRA notice from my employer. What should I do?

If you already have individual health insurance coverage, you don’t need to change that coverage to meet the HRA’s health coverage requirement.

If you don’t already have individual health insurance coverage, you can enroll in coverage through the Marketplace or outside of it, like directly through an insurance company or a licensed health insurance agent or broker.

Note: In most states, people use HealthCare.gov to enroll in Marketplace coverage, but some states run their own Marketplace. See a list of states with their own Marketplaces.

If you are enrolled in Medicare Part A and B or Medicare Part C, your enrollment in Medicare will meet the HRA’s health coverage requirement. Find out how to enroll in Medicare.

When should I enroll in health insurance coverage if I have an offer of an individual coverage HRA?

If your individual coverage HRA starts January 1, you (and any household members, if applicable) can enroll in Marketplace insurance or a private plan outside the Marketplace during the yearly Open Enrollment Period from November 1 through December 15.

If you newly gain access to an individual coverage HRA at another time of year, you (and any household members, if applicable) may qualify for a Special Enrollment Period to enroll in or change Marketplace health insurance coverage outside of Open Enrollment. You may need to use this Special Enrollment Period if your individual coverage HRA starts later than January 1, or if you got hired or became eligible for the individual coverage HRA mid-plan year. If you qualify, you’ll need to enroll during the required timeframe:

  • Generally, you’ll need to apply for and enroll in individual health insurance coverage in time for it to take effect by the date that your individual coverage HRA starts. However, your employer might offer different options for when your individual coverage HRA can start to give you more time to enroll. Contact your employer or check your individual coverage HRA notice to see if this applies to you.
  • If you have questions about your individual coverage HRA start date, check your employer notice, or contact your employer.
  • If your individual coverage HRA starts on January 1 you should enroll in individual health insurance coverage during the yearly Open Enrollment Period (November 1 to December 15), so that your individual health insurance coverage start date matches the January 1 start date of your individual coverage HRA.
  • If you qualify to enroll in Marketplace coverage through an individual coverage HRA or Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) Special Enrollment Period that starts after January 1, 2020, you will need to call the Marketplace Call Center to complete your enrollment.

I got an individual coverage HRA notice from my employer after I enrolled in Marketplace coverage. What should I do?

If you already have Marketplace coverage, you don’t need to change it. However, you should use this worksheet (PDF) to determine whether your individual coverage HRA is affordable. If it is, you should use it instead of the tax credit that's shown in your Marketplace eligibility notice. To do this, return to your application and update the amount of APTC you apply to your monthly premiums to $0.

If you want to change coverage based on your individual coverage HRA offer, you may be able to do so through a Special Enrollment Period. But if you change plans outside of Open Enrollment, the amount you’ve paid toward your out-of-pocket expenses (deductible and maximum out-of-pocket costs) for your old plan may not carry over to your new one. You can ask your insurance company to carry over your out-of-pocket expenses, but it’s ultimately up to them based on company policy and state law.