Excepted Benefit HRA (EBHRA)

If you’re new to health benefits, the term Excepted Benefit HRA (EBHRA) might sound a bit complicated. But don’t worry, I’m here to break it down in simple terms, especially for small business owners, HR managers, and employees wondering how EBHRAs can fit into their benefits plan. EBHRA is a type of Health Reimbursement Arrangement that helps businesses take control of health benefits while offering employees more flexibility to manage their own healthcare expenses. Stick with me, and you’ll get a clear picture of what this means for you and your business.

What Is an Excepted Benefit HRA (EBHRA)?

The Basics of EBHRA

An Excepted Benefit HRA is a specific kind of Health Reimbursement Arrangement allowed under federal law. Introduced relatively recently, it lets employers reimburse their employees for certain medical expenses — like dental, vision, and even short-term health plans — without all the complexities tied to traditional group health insurance. It’s called “excepted” because it’s excepted from some regulations that apply to other health plans, making it more flexible for both employers and employees.

How EBHRA Differs from Other HRAs

Unlike Individual Coverage HRAs (ICHRA), which reimburse employees for individual health insurance premiums, EBHRAs typically cover benefits that stand apart from major medical insurance. This can include expenses for:  

• Dental and vision care  
• COBRA premiums  
• Short-term limited duration insurance  
• Certain out-of-pocket medical expenses, but generally not premiums for major medical coverage  

This distinction opens doors for small businesses that want to provide benefits but don’t want to shoulder the full cost or administrative burden of comprehensive insurance.

Who Can Use an Excepted Benefit HRA?

Employer Eligibility

EBHRAs are available for small and large employers alike. If your business currently offers a traditional group health plan, you can add an EBHRA alongside it — employees can be reimbursed for excepted benefits in addition to their group health coverage. But if you don’t offer any group health plan, EBHRA alone can’t be your only option; it's meant to complement, not replace, major medical coverage.

Employee Eligibility

Employees who work for companies offering EBHRAs benefit by getting reimbursed tax-free for those specific health expenses. Family members and dependents may also be eligible for reimbursements depending on the employer’s setup. Keep in mind, though, that employees must still have major medical insurance for their other healthcare needs elsewhere since EBHRA doesn’t cover typical medical premiums.

What Expenses Does an EBHRA Cover?

Qualifying Expenses

EBHRAs are flexible but do have restrictions on what they pay for. Common reimbursable expenses include:  

• Dental premiums and out-of-pocket dental treatment costs  
• Vision premiums and eyeglasses or contact lenses  
• COBRA continuation coverage premiums  
• Short-term limited duration insurance premiums  
• Other excepted benefits like certain specified disease insurance or accident insurance  

However, EBHRA funds cannot be used to pay premiums for standard major medical insurance policies, such as ACA Marketplace plans.

Limits to Keep in Mind

The IRS caps the maximum amount an employer can contribute to an EBHRA annually — currently, the limit is $1,950 per employee (for 2024; this adjusts periodically). Employers must also design these arrangements to ensure that reimbursements don’t overlap with other health plans to stay compliant.

Why Should Small Businesses Consider an EBHRA?

Budget Control and Predictability

One big headache with traditional health plans is unexpected premium hikes. With an EBHRA, you define how much you contribute per employee each year, so there are no surprise costs. This fixed contribution lets small businesses plan their benefits spending with confidence.

More Employee Choice and Flexibility

Unlike one-size-fits-all group health plans, EBHRAs let employees use the reimbursement to cover expenses that matter most to them, such as vision and dental care. They get some freedom to manage their health expenses rather than relying solely on what the employer-selected plan covers.

Simplified Compliance

EBHRAs are excepted from many Affordable Care Act (ACA) requirements, so employers avoid a lot of the paperwork and legal hurdles typical of comprehensive group plans. The arrangement remains tax-advantaged while sidestepping some regulatory complexity.

How Does EBHRA Work in Practice?

Step 1 – Employer Sets Up the Plan

The employer defines the maximum reimbursement amount per year (up to the IRS limit), outlines who qualifies (full-time employees, part-time, dependents), and establishes the rules about which expenses qualify.

Step 2 – Employee Submits Claims

When an employee incurs eligible medical expenses or pays related premiums, they submit proof of those expenses to the employer or the third-party administrator managing the EBHRA.

Step 3 – Reimbursements Issued Tax-Free

The employer reimburses employees up to the predetermined maximum, tax-free. Employees can use these funds to offset the cost of health expenses not typically covered by their primary insurance.

How Does Excepted Benefit HRA Compare with Other Benefits like ICHRA or QSEHRA?

EBHRA vs. ICHRA

• EBHRA focuses on excepted benefits like dental, vision, and short-term plans; it doesn’t cover major medical premiums.  
• ICHRA reimburses employees specifically for individual health insurance premiums and related medical expenses.  

Employers can offer both concurrently as long as their designs comply with IRS rules.

EBHRA vs. QSEHRA

• QSEHRA is designed for very small employers (less than 50 employees) who don’t offer group health insurance and reimburses individual market insurance premiums and qualified medical costs.  
• EBHRA can be offered with existing group plans and targets excepted benefits.

Understanding these differences helps businesses pick the right health benefit mix based on their size, budget, and goals.

Common Questions About Excepted Benefit HRAs

What if an Employee Doesn’t Use Their EBHRA Funds?

Unused EBHRA funds generally don’t roll over year-to-year unless the employer allows it. If funds expire, the employer isn’t required to reimburse after the period ends — so managing contributions carefully helps avoid waste.

Are Business Owners Allowed to Participate?

Owner participation depends on your business structure and tax status. For instance, some owner types in S-corporations may not be eligible. Consulting a tax advisor or benefits expert is wise to determine eligibility.

Can EBHRA Funds Be Used for Marketplace Premiums?

No, EBHRA funds typically cannot reimburse individual Marketplace insurance premiums. They’re intended for excepted benefits only, so employees must obtain major medical coverage separately.

Why SimplyHRA Is Your Go-To for Excepted Benefit HRA Solutions

At SimplyHRA, we understand that small businesses want to offer meaningful health benefits without drowning in complexity or unpredictable costs. We make it easy to set up and manage your EBHRA plan with a few clicks. Our platform automates expense submissions, approvals, and reimbursements, keeping everything compliant and transparent. Plus, our knowledgeable team supports you and your employees with benefit plan guidance anytime.

Small business owners can save money with fixed budgets while employees get freedom to choose plans that fit their lives — a win-win, if you ask me.

If you're considering Excepted Benefit HRA or just want to learn more about how it could work for your company, please reach out to SimplyHRA for a consultation. Email us at info@simplyhra.com or schedule a call at https://www.simplyhra.com/contact. We’re excited to help you take control of health benefits with confidence and ease.

How EBHRA Fits into the Current Health Benefits Landscape

Navigating the Post-ACA Era for Small Businesses

The Affordable Care Act (ACA) introduced vital protections and broader insurance access, but for small businesses, it also brought challenges — primarily, the cost and administrative complexity of offering traditional group health insurance. EBHRA emerged as a practical alternative or supplement, especially for companies seeking to offer meaningful benefits without pushing full group coverage on every single employee. With EBHRAs, small businesses don’t have to commit to expensive group premiums but can still support employees’ health needs flexibly.

EBHRA’s Role in Supporting Diverse Employee Needs

Every small business has a unique workforce with varying healthcare priorities. For example, some employees may prioritize dental and vision care, while others rely heavily on short-term insurance or need COBRA coverage after leaving a job. EBHRA’s design allows employers to serve this diversity by reimbursing select benefits that complement—not duplicate—their employees' existing coverage. This approach fosters inclusivity and can improve employee satisfaction by personalizing benefits.

Setting Up an EBHRA: Practical Considerations

Defining Employee Classes

The IRS allows employers to create different reimbursement amounts for different employee classes, such as full-time vs. part-time, seasonal workers, or geographic locations. Establishing fair and compliant classes requires care but allows small businesses to target benefits effectively according to workforce needs and budget constraints.

Communication Is Key

Implementing an EBHRA means educating employees about what the plan covers, how to submit claims, and what types of health expenses qualify. Clear communication ensures employees feel supported and make the most of the benefit. Employers often find that combining EBHRA with robust education or even broker assistance leads to higher satisfaction and smoother plan operation.

Integration with Payroll and Benefits Software

Technology can save tons of time managing HRAs. Many platforms, including SimplyHRA, offer seamless integration with payroll systems, automating reimbursements and tax reporting. This automation minimizes administrative burden and reduces error risks—a true lifesaver for small HR teams or business owners who juggle multiple hats.

Impact on Taxes and Compliance

Tax Advantages for Employers and Employees

One big plus of EBHRA is the tax benefit. Employer contributions are generally tax-deductible as business expenses. Employees receive reimbursements tax-free, meaning they don’t pay income or payroll taxes on those funds. This efficient tax treatment helps keep more money in the pockets of both sides compared to taxable benefits or salary increases.

Staying Compliant With Health Laws

Even though EBHRAs avoid many ACA mandates, employers still need to comply with Department of Labor (DOL), IRS, and ERISA rules, depending on their business structure and plan details. Staying on top of these regulations is crucial to maintain the tax advantages and avoid penalties. Working with knowledgeable partners—including benefits platforms and legal advisors—can take this off your plate.

Real-World Examples of EBHRA in Action

Small Business A: Startup With Limited HR Staff

A tech startup with 15 employees wanted to offer health benefits without committing to traditional group insurance premiums and administrative overhead. Offering an EBHRA allowed the company to reimburse dental and vision expenses up to $1,950 yearly per employee. Employees appreciated the flexibility, and the startup stayed within tight budget limits while providing meaningful support.

Mid-Sized Business B: Adding EBHRA Alongside Group Health

A growing retail chain already provided group major medical insurance but wanted to help employees cover ancillary costs like vision care and COBRA premiums during transitional periods. By introducing EBHRA, the chain allowed employees to claim for those excepted benefits tax-free, boosting employee morale without increasing the complexity or cost of their main health plan.

What Small Business Employees Should Know About EBHRA

Understanding Your Benefits

If your employer offers an EBHRA, it’s important to know exactly what health expenses can be reimbursed and how to submit claims timely. Keeping receipts and documentation is key. Remember, EBHRA funds won’t cover your standard health insurance premium or major medical services, so you’ll want to carefully combine your benefits with other coverage like marketplace plans.

Maximizing the Value of Your EBHRA

Employees can make EBHRA money go a long way by using it toward routine dental cleanings, prescription eyeglasses, or premiums for short-term plans that bridge gaps in coverage. Budgeting your healthcare spending around these reimbursements ensures you get the full tax-free advantage without surprises.

Trends and Future Outlook for EBHRA

The health benefits world never stands still. EBHRAs represent one of several innovations empowering small businesses in a market where insurance and care costs keep rising. We expect EBHRAs to become an increasingly popular choice as more employers seek affordable, flexible ways to support employee health without over-committing resources.

Thanks to ongoing regulatory updates and tech solutions like SimplyHRA, adopting or combining EBHRA with other options is easier than ever. Keeping aware of potential changes in laws and contribution limits will help employers and employees maximize their benefits over time.

Why SimplyHRA Stands Out for EBHRA Support

Navigating EBHRAs is no small feat, but SimplyHRA specializes in taking that complexity off your plate. We provide a user-friendly platform that helps employers set up and customize EBHRA plans in minutes, while employees enjoy clear processes for submitting claims and receiving reimbursements quickly. What’s more, our automated compliance checks and 24/7 AI-powered support mean you can focus on growing your business—not wrestling with benefits paperwork.

Whether you’re just starting to explore EBHRAs or ready to launch a plan, we’re here for business owners, HR managers, and employees alike. Contact SimplyHRA for an expert consultation by emailing info@simplyhra.com or scheduling a call at https://www.simplyhra.com/contact. Take control of your benefits strategy with confidence and ease.

Frequently Asked Questions (FAQs) about Excepted Benefit HRA (EBHRA):

Q: Can employers combine the EBHRA with other types of HRAs or health plans?  

A: Yes. Employers often offer EBHRA alongside other health arrangements like Individual Coverage HRAs (ICHRA) or traditional group health plans. However, the design must prevent overlap in covered benefits to ensure compliance with federal rules. For example, an EBHRA can cover dental and vision while an ICHRA covers individual major medical premiums. Proper plan structuring and legal guidance are essential when combining multiple HRAs.

Q: Are part-time and seasonal employees eligible for EBHRA reimbursements?  

A: Employers have the flexibility to determine which employee classes qualify, including part-time or seasonal workers. If these employee categories are included, they must be clearly defined and consistently applied. Employers should consider how eligibility affects budgeting and overall benefits strategy.

Q: Does EBHRA funding carry over if an employee leaves the company mid-year?  

A: Generally, EBHRA funds are not portable nor do they carry over if an employee departs. Once employment ends, unused reimbursements typically expire. That said, employers can set plan rules about grace periods or reimbursements for expenses incurred prior to separation, but this must comply with IRS guidance.

Q: Can dependents and spouses' expenses be reimbursed through an EBHRA?  

A: Yes. Employers can extend reimbursements to employees' dependents and spouses for eligible excepted benefit expenses, based on the plan terms. This broadens support for the employee’s household but should be clearly communicated and documented within the benefits plan.

Q: What documentation do employees need to submit for EBHRA reimbursement?  

A: Employees typically need to provide proof of incurred eligible expenses, such as receipts, invoices, or explanation of benefits (EOBs). The documentation must show the amount paid, service date, and nature of the excepted benefit. Some plans use automated systems that verify eligibility to streamline this process.

Q: How does EBHRA affect employees’ eligibility for premium tax credits on Marketplace insurance?  

A: EBHRA reimbursements generally do not impact eligibility for premium tax credits since the benefit does not cover standard major medical premiums. However, employees should confirm their specific situation because receiving other types of HRAs, like ICHRA, can affect Marketplace subsidies.

Q: Are there any reporting requirements for employers offering an EBHRA?  

A: Employers must maintain records that substantiate contributions and reimbursements to ensure compliance with IRS and Department of Labor regulations. While EBHRAs don't require extensive ACA reporting like group plans, some reporting may be necessary depending on the employer's size and plan features.

Q: Can employers fund EBHRAs through salary reduction or employee contributions?  

A: EBHRAs are typically funded solely by the employer. Employee salary reductions or contributions are not generally permitted for this type of HRA. This setup distinguishes EBHRA from some other health benefit accounts that allow pre-tax employee contributions.

Q: How do annual contribution limits for EBHRA get determined, and can employers contribute less?  

A: The IRS sets an annual maximum limit for EBHRA contributions (e.g., $1,950 in 2024). Employers may choose to contribute less than the maximum but not more. Setting lower limits can help manage costs but may reduce the perceived value of the benefit from the employee’s standpoint.

Q: Are there any state-specific considerations employers should know about when offering an EBHRA?  

A: While EBHRAs are federally regulated, some states may have additional rules affecting how excepted benefits are treated, or on tax treatment of contributions and reimbursements. Employers should consult with benefits advisors familiar with both federal and state laws to ensure full compliance.

Q: How quickly do employees typically receive reimbursements after submitting EBHRA claims?  

A: Processing times vary by employer or third-party administrator, but many modern platforms offer reimbursements within a few business days. Some providers, like SimplyHRA, provide automated workflows and pre-funded debit cards that speed up payment, ensuring employees access their funds promptly.

Q: Can an EBHRA be used to pay for over-the-counter (OTC) health products or medications?  

A: Yes, to a limited extent. If an OTC product qualifies as an excepted benefit or a reimbursable medical expense under the employer’s plan and IRS guidelines, it may be eligible. However, OTC items without a prescription or not classified as preventive or essential benefits usually do not qualify.

Q: Are employers required to notify employees about the availability of EBHRA plans?  

A: Yes. Employers must clearly communicate the details of the EBHRA, including what expenses are covered, contribution limits, and claims procedures. Transparency ensures employees understand the benefit’s value and how to use it correctly.

Q: Does offering an EBHRA affect an employer’s obligation under the ACA’s employer mandate?  

A: Excepted Benefit HRAs alone typically do not satisfy the ACA employer mandate because they don’t provide comprehensive major medical coverage. Employers subject to the mandate generally need to offer group health insurance or options like ICHRA that cover major medical benefits.

Q: Can employers change EBHRA contribution amounts during the plan year?  

A: Changes to contribution amounts mid-plan year are generally discouraged and may create compliance risks. Employers usually set contribution levels annually during open enrollment and maintain them throughout the year to avoid disrupting employee expectations and tax advantages.

Q: What happens if an employee never incurs eligible expenses in a given year?  

A: Unlike some flexible spending accounts (FSAs), unused EBHRA funds typically revert to the employer at year-end unless the plan allows rollover. Employees don’t receive unused funds as cash or cash equivalents, so carefully communicating this helps manage expectations.

Q: Are prepaid or direct-pay debit cards a common feature of EBHRAs?  

A: Many employers partner with benefit administrators that offer prepaid debit cards funded by the EBHRA. These cards make it easier for employees to pay for eligible expenses directly without fronting the cost and waiting for reimbursement.

Q: How do COBRA election periods interact with EBHRA benefits?  

A: Employees eligible for COBRA can use EBHRA funds to reimburse premiums for continuation coverage. This is particularly helpful for those transitioning between jobs or experiencing life changes affecting their insurance. Plans must follow COBRA timing and notification rules.

Q: Can self-employed individuals or sole proprietors use EBHRAs?  

A: EBHRAs are designed for employers providing benefits to their employees, so sole proprietors without employees generally cannot set up EBHRAs for themselves. Different health reimbursement options, like Qualified Small Employer HRAs (QSEHRA), might be more applicable.

Q: Is there a maximum number of employees with whom a business can offer an EBHRA?  

A: No. Unlike QSEHRAs, which are limited to employers with fewer than 50 employees, EBHRAs can be offered by employers of any size, making them scalable for businesses from startups to larger enterprises.

Why SimplyHRA Is the Right Partner for Managing Your Excepted Benefit HRA (EBHRA)

Navigating the ins and outs of Excepted Benefit HRAs can seem overwhelming for small business owners and HR managers, but at SimplyHRA, we’ve walked in your shoes. We’ve helped many businesses implement and manage EBHRA plans that fit their budgets while giving employees meaningful, flexible health benefit options. Our platform simplifies the entire process—from setup and employee communication to automated reimbursements and compliance—removing common barriers that can make offering benefits feel like a full-time job.

HR managers appreciate how SimplyHRA streamlines benefits administration by integrating seamlessly with payroll and providing 24/7 AI-powered support, allowing them to focus on other priorities. Employees, in turn, find value in the freedom to choose how to spend their reimbursements on the excepted benefits that matter most to them and their families. The result? Happier teams, reduced administrative headaches, and a clear path to compliance with ever-changing health regulations.

If your small business is considering an EBHRA or looking for a better way to manage employee health benefits, SimplyHRA is here to help you succeed. Reach out for a consultation by emailing info@simplyhra.com or scheduling a call at https://www.simplyhra.com/contact. Let us take the complexity off your plate so you can focus on what matters most—growing your business and supporting your people.