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Why choose the Small Business HRA

The Comprehensive Guide to the Small Business HRA - Free PDF download

Small Business Health Insurance Reimbursement: Annual Report 2017 - Free PDF download

Small Business Health Reimbursement Arrangement Eligible Expenses

Health benefits are invaluable in a small business's quest to hire and keep talented employees. More than three-quarters of job seekers say benefits are "very important" when considering a job offer, and many would sacrifice even a higher salary for better benefits.

In the past, small businesses would have met this need by choosing a group health insurance policy or by giving employees a salary imncrease to purchase their own insurance. Today, however, small businesses and their employees are looking for solutions that offer the tax advantages of real benefits, provide greater choice, and require less investment of time and money. Thankfully, there is a new option that provides this value.

Since its creation in December 2016, the Small Business Health Reimbursement Arrangement (HRA) satisfies employees' desire for choice – rather than settling for a one-size-fits-all plan chosen by their employer, employees are empowered to make smart decisions about their own care by choosing a policy that best fits their needs.

At the same time, small businesses can cut back on the financial and time drain associated with traditional health benefits plans. By setting a monthly allowance, costs are fixed and surprise rate increases are no longer an issue. A Small Business HRA – particularly one supported by a software platform – also dramatically decreases the time required for businesses to administer the plan.

In this guide, we'll provide a comprehensive summary of the Small Business HRA, including how it was created, how it works, and how it stacks up against other health benefits options available to small businesses.


How the Small Business HRA works

The new Small Business HRA is available to qualified small businesses starting January 1, 2017.

A Small Business HRA is a company-funded, tax-free health benefits plan used to reimburse employees for individual health insurance and medical expenses.

Here's how the Small Business HRA works:

  • The HRA is available to small businesses (with fewer than 50 full-time employees) that do not offer a group health plan to any of their employees.

  • Businesses use the HRA to reimburse employees tax-free for health insurance premiums and other out-of-pocket medical expenses.

  • A company's annual contributions are capped at $4,950 for a single employee and $10,000 for an employee with a family. HRAs are 100 percent company funded; employee contributions are not allowed.

  • Employees with a Small Business HRA are required to have minimum essential coverage to receive HRA reimbursements. 

  • Employees with a Small Business HRA may access premium tax credits. However, if an employee is eligible for a premium tax credit, the amount of the credit will be reduced by the monthly HRA amount.

  • Generally, a company must make the same HRA contributions for all eligible employees. However, amounts may be varied based on family status.

  • The Small Business HRA is similar to the Stand-Alone HRA, which was made noncompliant for more than one participant by the Affordable Care Act (ACA). However, there are key differences. Here is a chart to compare the two HRAs.

  Stand-Alone HRA (2+ participants) Small Business HRA
Currently available and compliant? No. Yes, effective January 1, 2017.
Limits on company size? No. Yes. Available only to companies with fewer than 50 full-time-equivalent employees.
Eligibility restrictions allowed? Yes. Companies may restrict eligibility based on bona fide job criteria. No. Generally, all employees are eligible for the HRA. Companies may exclude employees who are part-time or seasonal.
Employees required to have insurance? No. Yes. Employees are required to have minimum essential coverage.
Different contribution amounts allowed? Yes. Companies may restrict contribution amounts based on bona fide job criteria and/or family status. Yes, but limited. Generally, a company must make the same HRA contributions for all eligible employees. However, amounts may vary based on family status.
Annual contribution limits? No. Yes. HRA annual contributions will be capped at $4,950 for a single employee and $10,000 for an employee with a family. 


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Frequently asked questions (FAQs)

1. What is the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)?

The QSEHRA, another name for the Small Business HRA, is an HRA exempted from certain compliance requirements and associated penalties. Similar to the Stand-Alone HRA, the Small Business HRA allows a qualified small business to use tax-free dollars to assist employees with the purchase of health insurance and related medical expenses.

Similarities with the Stand-Alone HRA are many; however, the new Small Business HRA establishes company contribution limits ($4,950 for employee only or $10,000 for employee plus family), a coordination with premium tax credits, and a requirement for participants to have minimum essential coverage.

2. Who is allowed to use the new Small Business HRA?

Small businesses: The law allows the Small Business HRA to be offered by businesses with fewer than 50 full-time-equivalent employees that do not currently offer a group health plan any of their employees (other than the Small Business HRA).

Employees: With few exceptions, all W-2 full-time employees of the small business are eligible to participate in the Small Business HRA. The law requires employees to be covered by a health plan that meets minimum essential coverage to receive contributions tax-free.

Owners: Small Business HRA eligibility for owners varies by ownership type. C-Corporation owners may participate in the plan and receive reimbursements 100% tax free, but sole proprietors, partners, and S-Corporation owners may not.

For more information, see Section 105 Plan Eligibility  By Ownership Status.

3. What can the Small Business HRA be used for?

Employees, their spouses, and their dependents are all eligible to have medical, dental, and vision expenses reimbursed with the Small Business HRA. They do not need to be on the same insurance policy, and they do not need to have individual health insurance.

There are many acceptable coverage combinations, including being on a spouse's or parent's insurance. However, participation eligibility does require that employees and their families show proof of minimum essential coverage.

There are two categories of expenses employees and their families can have reimbursed: insurance premiums and medical expenses. Insurance premiums can only be reimbursed if they are for an individual medical, dental, or vision policy. Pre-tax contributions to a group insurance policy are not eligible. Copays, deductibles, and many other medical expenses can be reimbursed regardless of association with a group or individual insurance policy.

4. How does the Small Business HRA interact with health care sharing ministries?

In order to participate in the Small Business HRA, employees must have minimum essential coverage. Because health care sharing ministries do not qualify as minimum essential coverage, participants do not qualify for a Small Business HRA benefit. 

For more information, see Health Care Sharing Ministries and the Small Business HRA.

5. What is the average monthly allowance set by small businesses using a Small Business HRA?

In 2016, small businesses offered an average monthly allowance of $501 per employee, across all states and family sizes. By family status, average allowance amounts were $357 for single employees and $606 for employees with a family.

For more information, including average allowance amounts by state and industry, see Small Business Health Insurance Reimbursement: Annual Report 2017.

6. How does the Small Business HRA interact with premium tax credits?

Small Business HRA participants may access premium tax credits; however, they must coordinate their premium tax credit with their monthly HRA allowance. 

IRS Code Section 36B requires employees first to calculate whether their Small Business HRA qualifies as "affordable coverage." In 2017, the HRA is affordable if the cost of the second-lowest-cost Silver plan on the employee's local exchange, subtracted by their monthly HRA allowance, is 9.69 percent or less of their household income.

If coverage is not affordable, the employee qualifies for a premium tax credit. However, any premium tax credit must be reduced dollar-for-dollar by the amount of the monthly HRA allowance. For example, an employee with a $250 HRA allowance who is eligible for a $400 premium tax credit would be able to access only $150 of that tax credit.

It’s possible that an employee’s tax credit will be reduced entirely by the HRA allowance; however, it cannot be reduced below zero.

For more information, including examples of premium tax credit calculation, see How to Calculate Your Premium Tax Credit with a Small Business HRA.

7. Are there any special notice requirements associated with the Small Business HRA?

Yes. Title 18, Section 4(A) of the 21st Century Cures Act requires small businesses to send a notice detailing the benefit to employees 90 days before the start of each calendar year in which the business will offer the HRA.

For new Small Business HRAs, businesses must send the notice at any point prior to, and including, the day your Small Business HRA goes into effect.

For more information, see The Small Business HRA's Notice Requirements 

Summary of legislation

U.S. Senators Charles Grassley (R-IA) and Heidi Heitkamp (D-ND) and Congressmen Charles Boustany (R-LA) and Mike Thompson (D-CA) introduced the bipartisan legislation in the Senate (S. 3060) and House (H.R. 5447), respectively, referred to as the Small Business Healthcare Relief Act (SBHRA). The legislation was then repackaged with minor changes into the 21st Century Cures Act (H.R. 34).

As a result of the September 2013 guidance issued jointly by the Departments of the Treasury, Health and Human Services, and Labor, small business owners were limited in their ability to use stand-alone health reimbursement arrangements (HRAs).

The SBHRA addressed this by ensuring small business owners can use Health Reimbursement Arrangements to assist employees with individual health insurance and medical expenses. The legislation introduced a Qualified Small Employer Health Reimbursement Arrangement, also known as a Qualified HRA or Small Business HRA, that:

  • allows small businesses to use tax-advantaged funding to assist employees with their out-of-pocket health insurance and related medical expenses, and

  • provides exemptions from current ACA compliance requirements and associated penalties.

The SBHRA provides relief on multiple fronts to small businesses by expanding affordable healthcare options, easing the burden of healthcare-related administration, and helping companies to remain competitive for purposes of recruitment and retention.

Lastly, the SBHRA benefits employees by affording them the flexibility and cost savings to personally choose the most appropriate health plan for their unique healthcare needs on the individual market.


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Read the legislation

 To view the full Small Business Healthcare Relief Act text as part of the 21st Century Cures Act, please visit:

H.R. 34, Section 18001.



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Coalition and congressional support

HRA coalition letter (June 15, 2016) from Zane Benefits

Zane Benefits, and 63 other small business advocates, delivered a joint letter to House and Senate lawmakers on June 15, 2016 urging Congress to move swiftly to pass this vital legislation. 

HRA leadership letter (December 4, 2015) from Zane Benefits

Zane Benefits, and 25 other small business advocates, delivered a joint letter to House and Senate lawmakers on December 4, 2015 urging Congress to move this commonsense legislation forward.

HRA coalition letter (December 4, 2015) 

Zane Benefits, and 15 other major organizations, delivered a joint letter to House and Senate lawmakers on July 13, 2015 urging Congress to move swiftly to pass the Small Business Healthcare Relief Act.















Coalition membership grew continually while the bill was being considered in Congress. Among others, the following associations publicly expressed their support for the Small Business Healthcare Relief Act:

  • Society of American Florists

  • The American Dental Association

  • The Tire Industry Association

The legislation also garnered cosponsor backing from a lengthy list of Congressional supporters.

House (59)
Rep. Mike Thompson (D-CA)*
Rep. Kristi Noem (R-SD)
Rep. Patrick Meehan (R-PA)
Rep. Robert Dold (R-IL)
Rep. Patrick Tiberi (R-OH)
Rep. Peter Roskam (R-IL)
Rep. Erik Paulsen (R-MN)
Rep. George Holding (R-NC)
Rep. Mike Kelly (R-PA)
Rep. Devin Nunes (R-CA)
Rep. Tom Price (R-GA)
Rep. Kenny Marchant (R-TX)
Rep. Vern Buchanan (R-FL)
Rep. James Renacci (R-OH)
Rep. Linda Sanchez (D-CA)
Rep. Bill Pascrell (D-NJ)
Rep. Earl Blumenauer (D-OR)
Rep. Brad Ashford (D-NE)
Rep. Kurt Schrader (D-OR)
Rep. Anna Eshoo (D-CA)
Rep. Collin Peterson (D-MN)
Rep. Ron Kind (D-WI)
Rep. John Larson (D-CT)
Rep. Norma Torres (D-CA)
Rep. Kyrsten Sinema (D-AZ)
Rep. Suzanne Bonamici (D-OR)
Rep. Denny Heck (D-WA)
Rep. Rod Blum (R-IA)
Rep. Cathy McMorris Rodgers (R-WA)
Rep. Martha McSally (R-AZ)
Rep. Bill Flores (R-TX)
Rep. Jim Cooper (D-TN)
Rep. Alan Lowenthal (D-CA)
Rep. Eric Swalwell (D-CA)
Rep. Kathleen Rice (D-NY)
Rep. Derek Kilmer (D-WA)
Rep. Markwayne Mullin (R-OK)
Rep. Richard Hudson (R-NC)
Rep. Kevin Cramer (R-ND)
Rep. Bill Johnson (R-OH)
Rep. Ryan Costello (R-PA)
Rep. Lou Barletta (R-PA)
Rep. Michael Turner (R-OH)
Rep. Reid J. Ribble (R-WI)
Rep. John Abney Culberson (R-TX)
Rep. Jeff Fortenberry (R-NE)
Rep. Rick W. Allen (R-GA)
Rep. Jackie Walorski (R-IN)
Rep. Scott Tipton (R-CO)
Rep. Mike Pompeo (R-KS)
Rep. Mike Bishop (R-MI)
Rep. Todd Rokita (R-IN)
Rep. Diane Black (R-TN)
Rep. Steve Stivers (R-OH)
Rep. David Reichert (R-WA)
Rep. Daniel Lipinski (D-IL)
Rep. Jason Smith (R-MO)
Rep. Tammy Duckworth (D-IL)
Rep. Joe Courtney (D-CT)

Senate (19)
Sen. Heidi Heitkamp (D-ND)*
Sen. Rob Portman (R-OH)
Sen. David Vitter (R-LA)
Sen. Cory Gardner (R-CO)
Sen. Pat Roberts (R-KS)
Sen. Johnny Isakson (R-GA)
Sen. Ron Johnson (R-WI)
Sen. Michael Bennet (D-CO)
Sen. Christopher Coons (D-DE)
Sen. Jon Tester (D-MT)
Sen. Mark Warner (D-VA)
Sen. Lisa Murkowski (R-AK)
Sen. Claire McCaskill (D-MO)
Sen. Thomas R. Carper (D-DE)
Sen. Marco Rubio (R-FL)
Sen. Kelly Ayotte (R-NH)
Sen. Orrin Hatch (R-UT)
Sen. John Hoeven (R-ND)
Sen. James E. Risch (R-ID)
* Denotes original cosponsor


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Comprehensive Guide

The Comprehensive Guide to the Small Business HRA - Free PDF download

Become an expert in evaluating, implementing, and administering a Small Business HRA.
Download the PDF.

2017 Annual Report

Small Business Health Insurance Reimbursement: Annual Report 2017 - Free PDF download

Learn how real businesses are making reimbursement plans work for them.
Download the PDF.

HRA Eligible Expenses

Small Business Health Reimbursement Arrangement Eligible Expenses

Use our interactive tool to see which medical expenses can be reimbursed via HRA. 
Explore the tool.