While group health insurance plans have traditionally been a popular choice for employer-sponsored health benefits, more and more employers are embracing reimbursement models, like health reimbursement arrangements (HRAs).
Plans like HRAs allow you to reimburse your employees, tax-free, for their own individual health insurance. This is a win-win scenario for both your organization and your employees for a lot of reasons. In this article, we’ll go over the top five advantages of individual health insurance that apply to both employers and employees.
When you look at the cost of group health insurance plans over the years, you’ll see that they’ve been steadily rising. As group health insurance premiums get more expensive, it becomes that much harder for small and medium size businesses to afford health benefits for their employees.
Not to mention the annual rate hikes that inevitably come once it’s time to renew your plan. Individual health insurance policies, on the other hand, are generally more affordable.
What’s more, by offering an HRA, you can give your employees a set monthly allowance to spend on their health insurance premiums and qualifying medical expenses, making it easy and consistent to budget for every month.
2. Availability of discounts
Not only are individual health insurance premiums more affordable to begin with, employees can also qualify for additional discounts on their premiums.
These discounts, known as health insurance subsidies, or premium tax credits, were created to help low-income Americans get affordable health coverage through the health insurance marketplaces.
If you offer a group health insurance policy that your employees can’t afford, there’s no discount available to help them make payments. That means their only option is to opt-out of the coverage, leaving them uninsured and less likely to stay on with your organization. The only other option would be to offer employees a stipend, but this option is not tax-free nor free of payroll taxes.
It’s important to note that if you offer an HRA, your employee may need to coordinate their premium tax credit with their HRA allowance, or choose between the two, depending on the type of HRA you’re offering.
While most employees are thankful for the group health insurance plan their employer offers, they don’t get any say in what kind of plan they ultimately end up with. That means they’ll be lumped into a one-size-fits all plan without any choice on their network, coinsurance, or premium cost.
By reimbursing your employees for their own individual health insurance instead, they can choose a plan that works with their current doctors, healthcare providers, and budget.
Group health insurance plans are full of strict requirements that can be hard for small and medium size business owners to meet.
For example, group health insurance plans require that a minimum number of employees are enrolled in the plan. If you have a lot of employees that are on a spouse’s or parent’s plan, enrolled in Medicare, or simply don’t want the coverage, you may not meet the participation requirements, which means you can’t even offer the plan to those who do want it.
What’s more, group health insurance plans have minimum contribution requirements as well, typically mandating that employers cover at least 50% of employees’ premiums. If you can’t afford to cover that much, you won’t be able to offer the plan.
Reimbursing your employees for their individual health insurance policies keeps you from having to follow these strict group requirements, gives you the flexibility to contribute what you can afford, and allows you to offer the benefit to any number of employees, depending on the plan you choose to set up.
Unlike group health insurance, individual health insurance policies are completely portable, meaning your employees can take their policy with them even after they leave the organization.
Reimbursing your employees for their individual health insurance with an HRA allows you to offer a formal health benefit that takes care of your employees, while also empowering them to make their own healthcare decisions that aren’t dependent on their employment.
Offering an HRA to give your employees tax-free reimbursements on their individual health insurance is an excellent way to contribute to your employees’ healthcare while empowering them to choose an individual plan that works for them.
This article was originally published on October 2, 2013. It was last updated on September 9, 2021.