Why Should Our Small Business Offer a Stand-Alone HRA?

Written by: Christina Merhar
Originally published on April 18, 2013. Last updated April 26, 2022.

Small businesses offer Stand-Alone HRAs to provide employees tax-free dollars for reimbursement of their medical expenses (including individual insurance premiums). This type of "defined contribution" solution is an an alternative to an employer-sponsored group health insurance plan that may not be affordable. Or, a business will offer a Stand-Alone HRA because they simply want to define and control their annual costs while still offering a valued employee benefit.

Why Offer An HRA
Here's a look at the key benefits of a Stand-Alone HRA for you (the employer) and to your employees.

Stand-Alone HRA: Employer Benefits

For every business, recruiting and retaining key employees is vital, and the employee health benefit program is an important part of the compensation offered to employees. A Stand-Alone HRA allows you to design a valued benefits package while controlling all costs. For example, your business controls:

  • Amount of HRA allowances available to employees 

  • The frequency HRA balances are made available (monthly, annually, etc)

  • What happens to unused HRA balances at the end of the year

  • What type of eligible medical expenses are reimbursed

Stand-Alone HRA: Employee Benefits

In addition to being a cost-effective and viable small business health insurance alternative, employees value these three main benefits of a Stand-Alone HRA.

#1: Employee Choice & Flexibility

With a Stand-Alone HRA, your employees choose how to spend their HRA allowance and they have full flexibility in how to spend their HRA allowance. Employees select their own individual or family health insurance policy that best fits their needs. They choose from any carrier and any type of plan. Often times, a company uses an insurance professional of their choice to help employees select these individual policies.

For example, if an employee doesn't use their full HRA allowance on their insurance premium, they can choose how to use the remainder of their allowance (on other eligible medical expenses such as co-pays, prescriptions, vision, dental, etc).  

#2: Employee Tax Subsidies Starting in 2014

With the implementation of health care reform, most employees will have access to significant tax subsidies through the health insurance marketplace. If your employee is eligible for a tax credit, the cost of their health insurance will be capped at 2% - 9.5% of their household income. An employee is eligible if their household income is less than 400% above the federal poverty line (that’s $94,200 per year for a family of 4 in 2013).  

This will make the cost of individual health insurance premiums affordable (and guaranteed issued) for the majority of employees, and make your HRA contribution go farther.

#3: Portability of Health Insurance

Because your employees purchase their own individual health insurance policies, employees own the policy and can take it with them when they switch jobs.  

The Comprehensive Guide to the Small Business HRA
Topics: HRA
Originally published on April 18, 2013. Last updated April 26, 2022.


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