So you’re a small business and want to offer your employees some sort of healthcare coverage? Bravo! You’ve made the easy decision to take care of your employees, but now comes the hard part: how to actually go about doing it. If you’re getting frustrated with pouring over the ins and outs of high deductibles/low premiums or low deductibles/high premiums, you may want to take a break for a moment and take a look at other options like a health reimbursement arrangement (HRA).
What is an HRA?
A HRA might just be the solution to the problem of how to provide affordable coverage for employees of a small business. HRAs are not health insurance plans, they are an IRS-approved way of allowing employers to reimburse their employees for their healthcare costs. Note that these are not accounts like HSAs or FSAs, but rather arrangements (hence the name), and as such they are simpler than bank accounts.
Employers do not have to (but can) have a pre-funded account for distribution of funds. They hold onto the money until an employee submits a claim for reimbursement. Thus, if employees do not submit any claims for reimbursement or do not claim for the full amount, then the employer keeps the money. On top of that, the reimbursements are tax-free!
If the above sounds like it might be a good option for your business, it’s worth taking a look at the two types of HRAs, QSEHRAs and the newer ICHRA, and compare the two.
For small businesses, finding a group health plan that works within their budget can be tough. In most states, group plans require employers to contribute at least 50% of the cost to employees, and require at least 75% of employees to opt in. If your business has fewer than 100 employees, it can be almost impossible to get “group savings.” But if you are in this boat, you’re in luck: you can offer your employees a QSEHRA. So what are the requirements? There are two main ones. Your business must:
- Have fewer than 50 employees
- Not have a group health plan
There are also a few things required of employees. In order for them to receive their tax-free reimbursement, they must:
- Have an individual health plan – this can be an exchange plan, Medicare, Medicaid, a spouse’s plan, etc.
- Submit a claim – all claims must be documented and approved.
Employers have a lot of flexibility in implementing a QSEHRA. They can choose the monthly reimbursement amount that employees are allowed, as long as their system is fair. The only caveat is that there are limits on the allowed monthly reimbursement amount. For 2020, employers can offer up to $437.50/month for individuals and $883.33/month for families (but are not required to offer that full amount). Employers also have the flexibility to choose whether to reimburse for insurance premiums only, or for premiums and medical expenses.
While QSEHRAs are a straightforward option for very small businesses, there is now another option to explore.
QSEHRAs have been around since 2017, but now there’s a new health reimbursement plan in town: the individual coverage health reimbursement plan (ICHRA), which has been described as a “supercharged” version of QSEHRA. ICHRAs offer the same flexibility as QSEHRAs, but with some expanded parameters. It’s definitely worth taking a look at this new type of HRA. So let’s see what the differences are.
- Business size – to qualify for a QSEHRA, your business must have less than 50 employees. But, there is no such restriction for ICHRAs: any business can utilize them.
- Employee “classes” – a feature that is unique to ICHRAs, employers can tailor the healthcare offerings by creating different “classes” of employees. For example, employers can create a full-time class and a part-time class, and then offer each different amounts of monthly reimbursement. They can even offer one geographically-based class group insurance and the other an ICHRA. Examples of classes include: full-time/ part-time, seasonal, salaried/hourly, in-state/out-of-state, waiting period (for new employees) class, etc. Keep in mind that the classes must be considered fair, and based solely on things like hours or location, NOT on health-based criteria.
- Group insurance – with QSEHRAs, businesses are not allowed to offer a group health plan alongside the arrangement. However, businesses can offer both an ICHRA and a group health plan, as long as they aren’t both offered to employees within the same class.
- Annual allowance caps – as outlined above, employers can only reimburse employees up to a fixed amount. ICHRAs do away with this limit: employers are free to offer as much in reimbursement as they wish.
If you are a smaller employer and are confused about how to offer your workforce healthcare, you may want to look into the possibility of offering an HRA. When the QSEHRA came along in 2017, it was a bit of a game-changer; now, you have even more flexibility with the new ICHRA.
Whatever option you choose, you can definitely feel good about your choice to help your employees get the healthcare they need. And if you need any help with the complicated world of insurance, we’re here to help. If you’re interested in finding out more about your group insurance options, contact us at EZ. We will connect you with a highly trained agent who will help you decide if an HRA is right for you and your business. You will save time, won’t ever be hassled, and will never spend a dime on our services. EZ.Insure will connect you with a dedicated agent for free, so let’s get started! Enter your zip code in the bar above to get an instant quote. To reach your own advisor call 888-998-2027, or enter your zip code above.