Health Reimbursement Arrangements: A Different Way for Small Businesses to Offer Health Benefits

Small Business Benefits

September 25, 2026

Traditional group health insurance isn't the only structure available to small business owners who want to help employees with healthcare costs. Health Reimbursement Arrangements offer a different approach entirely, and understanding the basic concept helps you evaluate whether it's worth exploring for your business.

TL;DR

• A Health Reimbursement Arrangement is an employer-funded arrangement that reimburses employees for qualifying healthcare expenses, rather than a traditional group plan.
• It works differently from group health insurance in how it's funded and administered.
• Several structures exist, and eligibility rules vary depending on business size and setup.
• This is one option among several — not a universal replacement for group coverage.

Why This Matters

Small business owners often assume the only path to offering health benefits is a traditional group plan, which can feel out of reach depending on budget and company size. Health Reimbursement Arrangements offer a structurally different approach — one worth understanding even if you ultimately choose a different path, simply because it changes what "offering health benefits" can actually look like for a smaller business.

What You'll Need

• A general sense of your current benefits offering, if any
• Your typical budget range for benefits as a share of payroll
• Your business structure and employee count, since eligibility rules can depend on these
• A CPA or tax professional to confirm how a specific structure would apply to your business

Health Reimbursement Arrangements, Step by Step

1. Understand the basic concept behind the arrangement

At a general level, an employer sets aside a defined amount of money that employees can be reimbursed for qualifying healthcare expenses, rather than the employer purchasing and managing a group insurance policy directly.

Common mistake: Assuming this works the same as simply increasing an employee's paycheck to cover healthcare costs. The structure and tax treatment are different.

2. Learn how this differs from traditional group coverage

Traditional group health insurance involves the employer selecting and paying into a specific insurance plan for the whole group. A reimbursement arrangement instead centers on employer-set contribution amounts that employees apply toward expenses or premiums they choose.

Common mistake: Assuming a reimbursement arrangement automatically includes the same plan-selection process as group insurance.

3. Understand that eligibility rules vary by business size and structure

Certain reimbursement arrangement structures come with specific rules about business size, whether other group coverage is offered, and how the arrangement must be administered.

Common mistake: Assuming any business, regardless of size or existing coverage, automatically qualifies for every type of reimbursement arrangement.

4. Consider how this could fit alongside other benefits

Some businesses use a reimbursement arrangement as their primary benefit offering, while others use it alongside other benefits — the right combination depends on your specific goals and workforce.

Common mistake: Assuming this approach must be all-or-nothing rather than one possible piece of a broader benefits strategy.

5. Recognize the administrative differences

Reimbursement arrangements generally require specific documentation and compliance steps that differ from traditional group insurance administration, which is worth understanding before committing to a structure.

Common mistake: Assuming this approach is automatically simpler to administer than group insurance without confirming the actual compliance requirements.

6. Confirm the tax treatment for your specific business

How a reimbursement arrangement is taxed — for the business and for employees — depends on the specific structure used and should be confirmed directly rather than assumed.

Common mistake: Assuming all reimbursement arrangements are taxed identically, without confirming the details for the specific structure you're considering.

Talk through what fits your business

A plain-language conversation, not a sales pitch, about how this approach compares to your other benefit options.

Contact MSJ Benefit Advisors

Troubleshooting

• Is this only for large companies? No — several structures are specifically designed with smaller businesses in mind, though eligibility details vary and are worth confirming directly.
• Can I offer this alongside a group health plan? It depends on the specific structure — some are designed to work alongside group coverage, while others are designed as an alternative to it.
• Do employees choose their own coverage with this approach? Generally, yes — employees typically select their own coverage or expenses to be reimbursed, rather than being assigned a single group plan.
• Is this harder to set up than a group plan? Not necessarily, though it involves different administrative steps that are worth understanding directly rather than assuming either way.
• Does business structure affect which arrangement I can use? Yes — your business structure and size can affect eligibility, which is why this should be confirmed for your specific situation.

Tools and Resources

• A written summary of your current benefits offering, if any
• A general budget range for benefits as a share of payroll
• A CPA for tax-treatment specifics tied to your business
• A licensed Georgia agent for a walkthrough of which reimbursement structures fit your business size and goals

What To Do Next

Once you have a general sense of your budget and current benefits picture, the next useful step is comparing a reimbursement arrangement against traditional group coverage for your specific business — a conversation worth having individually rather than through a generic comparison.

FAQ

What is a Health Reimbursement Arrangement?
It's an employer-funded arrangement that reimburses employees for qualifying healthcare expenses, structured differently from a traditional group insurance plan.

Can a small business really offer this instead of group insurance?
In many cases, yes — several structures are specifically designed for smaller businesses, though eligibility rules vary and are worth confirming directly.

Do employees pick their own health coverage with this approach?
Generally, yes — this is one of the key structural differences from a traditional group plan, where the employer selects the plan for everyone.

Is this more or less expensive than group insurance?
It depends on your specific business, workforce, and goals — there's no universal answer, which is why comparing your options directly matters.

Do I need a CPA involved in setting this up?
Generally, yes — the tax treatment varies by structure and should be confirmed for your specific business before moving forward.

One Last Thing

The detail small business owners often miss: offering health benefits doesn't have to mean choosing a traditional group plan or nothing at all. Reimbursement arrangements represent a structurally different path worth understanding, even if a group plan ultimately turns out to be the better fit for your business.

Related Guides

(Placeholder — will link to related Small Business Benefits articles as the series grows.)

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MSJ Benefit Advisors is not affiliated with or endorsed by the U.S. government or the federal Medicare program. We are a licensed independent insurance agency and do not provide tax or legal advice unless separately licensed to do so. As a Third-Party Marketing Organization (TPMO), we may be compensated based on your enrollment in a plan. Plan availability, benefits, and rules vary by state and carrier. This content is for educational purposes only.