The math on traditional group health plans is getting harder to ignore.
As employer-sponsored health coverage costs continue to climb, projected to exceed $18,500 per employee in 2026, businesses are being forced to rethink how they fund benefits. For many, the solution isn't abandoning group health plans altogether. It's adopting more flexible strategies to manage cost, risk, and employee choice.
That's where Health Reimbursement Arrangements (HRAs) come in.
Rather than replacing traditional group plans, HRAs are reshaping how employers approach health benefits, offering a more predictable, customizable way to support coverage in a high-cost environment.
Importantly, HRAs aren't a one-size-fits-all replacement for traditional group health insurance. Many employers continue to offer group plans alongside HRAs, using them to offset out-of-pocket costs or expand coverage options. What's changing is not the existence of group health plans — but how employers fund and structure benefits around them.
Something has to give. And for a growing number of employers, HRAs are becoming a key part of the solution.
What is an HRA, and why is it gaining traction so fast?
A Health Reimbursement Arrangement is an employer-funded benefit that reimburses employees for qualified medical expenses and, in some cases, individual health insurance premiums — all tax-free. Unlike traditional group plans, where the employer picks the plan and negotiates renewal every year, HRAs flip the model: the employer sets a fixed budget, and employees choose the coverage that works best for them.
The result is a benefits model that gives employers cost predictability and gives employees genuine choice.
There are several types of HRAs, each designed for different employer situations:
- ICHRA (Individual Coverage HRA) — Available to employers of any size, the ICHRA allows employees to purchase their own ACA-compliant individual health insurance and get reimbursed by their employer. It's the fastest-growing HRA model and can be structured to accommodate different classes of employees — full-time, part-time, seasonal, remote workers, and more.
- QSEHRA (Qualified Small Employer HRA) — Designed for businesses with fewer than 50 full-time employees that don't offer group health insurance. For 2026, the IRS updated QSEHRA limits to $6,450 for self-only coverage and $13,100 for family coverage — both up from 2025.
- GCHRA (Group Coverage HRA) — Used alongside an existing group health plan, this type helps employees cover out-of-pocket costs like deductibles, copays, and expenses not fully covered by their primary plan.
The numbers behind the shift
The growth of HRAs — and ICHRAs in particular — is no longer a niche story. It's a mainstream trend backed by real data.
According to the HRA Council's 2025 Growth Trends Report, ICHRA adoption grew 34% among large employers (those with 50 or more full-time employees) from 2024 to 2025. Among smaller employers, adoption grew 52% over the same period. Since ICHRA launched in 2020, overall adoption is up more than 1,000%.
Perhaps even more telling: 92% of employers who offered an HRA in 2024 continued offering one in 2025. This isn't a trend of employers experimenting and retreating — it's employers adopting, staying, and building their benefits strategies around the model.
What's driving this? A few things converge at once. Group health premiums are rising at 9 to 13% annually according to Milliman's medical cost trend data. The individual market, by comparison, has seen more moderate increases in recent years — giving employers who incorporate ICHRA into their benefits strategy a genuine cost advantage in many markets. Employer healthcare costs on a compound basis are now projected to be 62% higher in 2026 than they were in 2017, according to the Business Group on Health. The case for a defined-contribution model is becoming harder to argue against.
As one ICHRA employer described it: in their first year on the platform, employees selected over 100 unique individual health plans. Younger, healthier employees gravitated toward lower-premium, higher-deductible options — exactly the kind of risk-appropriate self-selection that group plans can't accommodate.
Why employers are turning to HRAs now
There are three practical drivers pushing employers toward HRA solutions in 2026 specifically.
Unpredictable renewal cycles are getting worse. With group plan increases landing anywhere from 9% to 32% depending on the carrier and market, employers are walking into renewals without knowing what they'll face. Adopting HRAs as part of their strategy flips this: employers set the contribution amount in advance, and that number doesn't change based on claims experience or carrier pricing decisions. The budget is defined before the plan year begins.
Workforce diversity demands more flexibility. Today's employers manage employees across multiple states, time zones, and employment classifications. A single group plan rarely serves everyone well — it's too expensive for part-time workers, may not include the right providers for remote employees, and forces everyone into the same coverage regardless of their individual needs. ICHRAs accommodate this by letting employers define contribution amounts by employee class, giving each segment access to a plan that fits their situation.
59% of employers are cutting benefits to manage costs. Mercer's survey found that 59% of employers plan to make cost-cutting changes to their health plans in 2026 — up from 48% in 2025 and 44% in 2024. Most of those changes come in the form of higher deductibles and reduced coverage, which shifts burden to employees. HRAs offer a more flexible route: instead of cutting coverage quality, employers adopt a model where employees choose the level of coverage that matches their actual needs and budget.
What good HRA plan administration looks like
An HRA is only as effective as the administration behind it. Employers who are considering adopting HRAs as part of their strategy — or who have already done so but struggle with the day-to-day management — need an administration partner who handles the complexity so they don't have to.
Good HRA solutions administration covers several key functions:
- Setting up and structuring the HRA correctly for the employer's workforce classification
- Managing the reimbursement process so employees can submit claims easily and get paid quickly
- Ensuring compliance with IRS rules on eligible expenses, contribution limits, and documentation
- Coordinating with individual insurance carriers or marketplaces as needed
- Providing reporting and recordkeeping that protects the employer in the event of an audit
The right HRA administration partner removes the burden from HR and makes the experience smooth for employees — so the benefit actually gets used and appreciated, not ignored because the claims process is confusing.
Clarity's complete benefits platform is built to handle exactly this. From HRA setup through ongoing administration, Clarity's technology-forward approach means employers get a streamlined, compliant, and genuinely easy-to-manage benefits program — without the administrative overhead that often makes HRAs feel complicated.
HRAs and the broader 2026 benefits picture
HRAs don't exist in isolation. The most effective benefits programs in 2026 are built around flexibility — combining the right mix of accounts and coverage to meet employees where they are. That might mean pairing an HRA with an FSA for additional tax-advantaged spending, or structuring an ICHRA alongside a Health Savings Account-eligible individual plan.
If you want to understand how these components fit together for your workforce, our guide on expansion of HSA and FSA rules for 2026 is a helpful starting point. And if you're building a more comprehensive benefits strategy that goes beyond just health coverage, Benefits Flexibility in 2026: Building for People, Performance, and Purpose lays out how leading employers are thinking about total rewards in the current environment.
Is an HRA right for your organization?
The honest answer is: it depends on your workforce, your current plan structure, and your cost trajectory. HRAs are not the right solution for every employer in every situation. But for a growing number of businesses — particularly those facing double-digit group plan increases, managing employees across multiple states, or struggling to offer meaningful benefits within a fixed budget — adopting HRAs as part of their benefits strategy offers a compelling, proven path forward.
The bottom line
HRAs are not replacing traditional health plans wholesale. They are becoming an increasingly important tool for employers looking to manage rising healthcare costs, improve flexibility, and better align benefits with a diverse workforce. In a high-cost environment, the strategy isn't replacement — it's simply smarter design.
If you're ready to explore what an HRA could look like for your organization, request information from the Clarity team — or schedule a demo to see how Clarity's HRA solutions administration works in practice.
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