Until recently, small businesses wanting to provide health benefits to employees were limited to implementing a group health insurance policy. Small business owners know that this is often not a viable option. Cost, employee participation requirements, and restriction of provider networks are just a few of the obstacles associated with group health insurance.
As such, employers may consider providing a benefit by covering their employees’ health care expenses via taxable bonuses or an increase in salary. After considering or trying these options, employers will find that they are often costly and leave the employee with additional tax responsibility.
This leaves employers in the difficult position of wondering if they can offer benefits to their employees. A successful alternative for your company may come in the form of a reimbursement plan, such as a Health Reimbursement Arrangement (HRA).
What is a Health Reimbursement Arrangement?
An HRA is an employer-funded health benefit plan that allows for the reimbursement of an employee’s eligible healthcare expenses. An HRA is not health insurance. Rather, an HRA allows employers to make a contribution to an employee’s plan and provide reimbursement for eligible expenses.
It is helpful to note that, just like other types of health benefits, HRAs have undergone changes with the Affordable Care Act. Currently, there are three compliant ways to use HRAs:
One-person stand-alone HRA
Tax Free Reimbursement
As stated previously, some employers provide a bonus or an increase in salary to help cover the cost of their employees’ healthcare expenses. Unlike bonuses or wages, reimbursements received from an HRA are non-taxable to the employee and are tax-deductible for the employer. This means savings for employer and employee.
No minimum or Maximum Contribution Limits
Unlike a Health Savings Account (HSA), with an HRA there is no restriction on the amount of money that an employer can contribute to the employee’s reimbursement plan. Employers can make decisions on contribution amounts without concern for a minimum requirement or a maximum limit.
With an HRA employees choose how to spend their healthcare dollars, within the parameters of what the plan allows.
Control Eligible Expenses
Health Reimbursement Arrangements allows an employer to control which types of healthcare expenses are reimbursable by the plan. An eligible expense can be any qualified medical expense, defined by IRS Code Section 213(d), including premiums for personal health insurance policies.
Employers may restrict the list of reimbursable expenses in any way they choose for their HRA plan, but remember -- the employer also needs to be sure the HRA complies with the Affordable Care Act (including the “Market Reforms”.) To ensure compliance and to make HRA administration easy, most employers choose to work with HRA administration software.
As a small business owner you know the importance of every cent your company spends. Group Health Insurance can be expensive and may not fit the needs of employees. A Health Reimbursement Arrangement, or other type of healthcare reimbursement plan, might be the solution for your small business.
Can you think of other money-saving strategies to implement for your small business? Start a discussion below. We’d love to hear your thoughts!