Can HRAs reimburse long-term care premiums?

Long-term care insurance is a great coverage option that protects individuals from the financial burden of extended medical care. About 70% of American adults aged 65 and older will need some kind of long-term care in the future. So, adding long-term care insurance to a company benefits package can be an effective retention strategy for employers and HR professionals¹.

Offering a health reimbursement arrangement (HRA) is another way to support the well-being of your workforce. An HRA can reimburse a wide range of medical expenses. But can HRAs cover employees’ long-term care insurance premiums? Let’s break down the rules.

In this blog post, you’ll learn:

• The basics of how HRAs work for employers and employees.
• What long-term care insurance covers and the average annual premium costs.
• Which HRAs can reimburse long-term care insurance premiums and other out-of-pocket medical expenses.

How do HRAs work?

Before we get into what an HRA can cover, let’s quickly review how HRAs work for employers and employees.

An HRA is an employer-funded health benefit that reimburses employees tax-free for their individual health insurance premiums and eligible out-of-pocket medical expenses. IRS Publication 502² and the CARES Act³ list more than 200 qualified expenses that an HRA can reimburse.

Here’s the basics of how an HRA works:

1. The employer sets a monthly allowance amount. You decide the maximum amount of pre-tax dollars you want to offer employees for their eligible medical costs.
2. The employees buy medical care. Your staff buys their preferred insurance policies, healthcare items, and medical services. Certain types of HRAs require employees to enroll in a specific kind of health insurance plan to participate in the benefit.
3. The employees submit proof of purchase. After buying an eligible service or item, your employees must give you proper claim documentation. Documentation is usually a receipt, invoice, or doctor’s note.
4. The employer reviews the claim. You or your HRA administrator review your employees' documentation. If it's an eligible medical expense that meets the necessary claim requirements, you can approve it.
5. The employer reimburses employees. After approving the eligible expense, you reimburse your employees tax-free up to their set allowance amount. Unused HRA funds stay with you at the plan year's end or if an employee leaves your company.

HRAs also have tax benefits. Employer contributions are tax-deductible and payroll tax-free. Reimbursements are also income-tax-free for your staff.

The three most popular types of HRAs are:

1. The individual coverage HRA (ICHRA). An ICHRA is for businesses of any size. Employees must have qualifying individual health insurance coverage to participate. You can offer an ICHRA or group health insurance to your employees, but not both. You must offer either group or the ICHRA to each employee classes, and you can’t let employees choose between the two. The ICHRA has no annual contribution limits.
2. The qualified small employer HRA (QSEHRA). A QSEHRA is for small to mid-sized companies with fewer than 50 full-time equivalent employees (FTEs). It’s for organizations that don’t offer a group plan. It has no minimum limits; however, the IRS sets annual contribution limits. Employees need a plan with minimum essential coverage (MEC) to participate in the benefit.
3. The group coverage HRA (GCHRA). Also called an integrated HRA, the GCHRA supplements a group health insurance policy. Only employees enrolled in their employer’s group plan can participate.

Business owners have a lot of flexibility when designing their HRA. For example, with a QSEHRA or ICHRA, you can create the benefit to reimburse insurance premiums only or premiums plus other out-of-pocket costs. Just be sure to outline the benefit’s details in the plan documents.

How much does long-term care insurance cost?

Long-term care insurance helps individuals cover the cost of personal and custodial services that help with their daily activities. These services can include medical and non-medical expenses in their homes or other assisted living facilities.

This type of insurance reimburses policyholders for qualified long-term care services up to a daily or monthly amount. Most insurers also have limits on how long the coverage lasts, such as up to five years. But like all insurance, individuals must pay a premium to keep the policy active.

According to the American Association for Long-Term Care Insurance, the average annual premium for long-term insurance in 2024 was as follows⁴:

At age 60, the average annual premium for a single male rose to $1,200 and $1,900 for a single female. The combined premium for a couple aged 60 went up to $2,600 per year.

Even though the monthly breakdown of these premium costs may not be as expensive as other types of health insurance, it can be an extra expense an individual may not want to take on.

Can HRAs reimburse long-term care premiums?

Yes, some types of HRAs can reimburse long-term care premiums. However, this wasn’t always the case. When the federal government implemented the Affordable Care Act (ACA) in 2014, it considered HRAs group health plans. This meant HRAs had to follow ACA regulations, such as prohibiting annual dollar limits on the ten essential health benefits and covering preventive services without cost-sharing amounts.

To meet these compliance requirements, HRAs had to integrate with an ACA-compliant group health plan. Because long-term care insurance wasn’t ACA group coverage, nor did the IRS consider it an essential or preventive medical service, its premiums were ineligible for reimbursement.

However, the creation of the QSEHRA in 2016 and the ICHRA in 2019 brought about notable changes. These stand-alone HRAs must follow certain ACA and IRS guidelines. But they don’t integrate with group health insurance. Instead, employees choose their own ACA-qualified individual health plan and receive reimbursement for premiums and other eligible expenses, including long-term care insurance premiums.

While HRAs typically can’t reimburse employees for insurance that provides a lump sum or reimbursement in itself, IRC Section 213(d) specifically allows HRAs to reimburse “limited amounts” of long-term care premiums⁵. You can include the cost of the premiums for the medical portion of a long-term care policy.

Keep in mind that your employees must have a medical plan with MEC to participate in a QSEHRA. For the ICHRA, employees must have a qualifying form of individual health insurance coverage.

The GCHRA, which was the traditional integrated HRA, remained unchanged. It can reimburse employees for out-of-pocket expenses their group plan doesn’t fully cover, such as deductibles and copays, but insurance premiums are ineligible.

What other insurance premiums can HRAs reimburse?

In addition to long-term care premiums, the QSEHRA and the ICHRA can reimburse other types of coverage. Knowing which premiums qualify for reimbursement helps your employees choose the right plans for them, their families, and their budget.

Here are other types of premiums a QSHERA and ICHRA can reimburse:

What other long-term care expenses can HRAs reimburse?

The premiums for long-term care coverage are just one qualified health expense an individual may face. Medical costs related to long-term care can add up quickly and reoccur over a substantial period of time, depending on how long someone needs assistance. Thankfully, an HRA can help relieve this financial burden for your employees.

Below are common out-of-pocket medical expenses that employees who need long-term care may encounter:

• Prescription drugs
• Over-the-counter drugs
• Hearing aids and batteries
• Wages and taxes for nursing services
• Ambulance and emergency health services
• Car modifications (with a doctor’s note)
• Home modifications (with a doctor’s note)
• Medical equipment and repairs
• Occupational and physical therapy
• Medical diagnostic services
• Special foods (with doctor’s note)
• Wheelchair and repairs

These medical care expenses are HRA-eligible under IRS Publication 502. As long as your employees have an available HRA allowance and submit the proper claim documentation, you can approve the cost and reimburse them tax-free. With an HRA, employees who need long-term additional care can live healthier and financially stress-free lives.

Conclusion

Offering long-term care insurance as part of your benefits package is an excellent way to support your staff. While the ACA initially prohibited HRAs from reimbursing long-term care premiums, the introduction of QSEHRAs and ICHRAs made it possible. These two HRAs can also cover many out-of-pocket long-term care expenses, which can help your employees manage their medical costs.

Whether your employees need long-term support or simply routine medical care, PeopleKeep by Remodel Health has an HRA that can help! Our HRA administration software solution allows employers of all sizes to support a diverse workforce so they can attract and retain employees. Contact us today, and we’ll get you started.

This blog post was originally published on July 8, 2013. It was last updated on March 26, 2025.

1. Administration for Community Living Data

2. IRS Publication 502

3. CARES Act

4. 2024 Long-Term Care Insurance Statistics

5. Congress.gov - HRA Overview and Related History