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How to make individual health insurance work for small employers

Individual Health Insurance • July 12, 2021 at 8:23 AM • Written by: Gabrielle Smith

As a small business owner, it’s likely that you, your family, and your employees are covered by individual health insurance policies. You like your network of doctors, the policy is affordable, and you may even be receiving premium tax credits. But at the same time, your business is growing and the question of expanding your health benefits is on the table.

It’s at this point when many small and medium size businesses begin to wonder how to offer benefits while also allowing their employees to keep their current individual coverage they already purchased and enjoy. One solution is to use a Section 105 medical reimbursement plan, like a health reimbursement arrangement (HRA).

In this article, we’ll go over how an HRA can help you offer a competitive health benefit that enhances your employees’ individual coverage rather than replacing it with a group health plan that may not work for everyone.

New to offering health benefits? Get our small business guide to health insurance for everything you need to know

Why individual health insurance works

While group health insurance is the traditional choice for offering health benefits to employees, millions of Americans are abandoning the rising group premium costs for more affordable and flexible individual insurance plans.

Data from the Centers for Medicare and Medicaid Services found that roughly 11.4 million Americans enrolled in a Marketplace plan during the 2020 open enrollment period. And it’s not hard to see why—below are just a few reasons why individual health insurance works.

It’s affordable

Survey data from the Kaiser Family Foundation has found that the cost for employers to offer a group health plan has been steadily rising over the last several years, causing serious reason for worry among employers.

Of those surveyed, 96% of employers agreed that the high costs of offering healthcare to their employees is excessive, and 87% believe the cost of providing health benefits to employees will become unsustainable in the next 5 to 10 years.

By offering an HRA, small employers avoid these expensive group premiums and annual rate hikes, and instead can offer a consistent, cost-controlled allowance for their employees to purchase their own individual plan.

It’s personalized

Not only are group health plans expensive, but they’re often too one-size-fits-all to meet the unique healthcare needs of a diverse and remote workforce. With an HRA, each of your employees can use the benefit differently and purchase their own individual plan with a price, doctor, and network that makes sense for them.

This is especially helpful if you have a wide age range among your organization. Even if you have both young employees who just want coverage in case of an accident and older employees who visit the doctor more frequently, reimbursing your employees for their individual health insurance allows all of them to get the personalized care they need.

It’s reimbursable

Finally, many individual health insurance premiums are reimbursable. These reimbursements are even free of income and payroll tax for both employers and employees, so long as your employees have a plan that meets minimum essential coverage.

With a group health plan, employees have to pay for anything their insurance doesn’t fully cover on top of paying for their monthly premium. By reimbursing your employees for their individual health plan with an HRA, your employees can get both their premium and over 200 eligible out-of-pocket medical expenses reimbursed.

Watch our 3-minute video to see which insurance premiums and medical expenses are HRA-eligible

How HRAs work alongside individual health insurance

Reimbursing your employees for their individual health insurance is easier than you’d think, especially if you have an HRA administration software provider like PeopleKeep and an award-winning customer support team to help you every step of the way.

Here’s how you can reimburse your employees for their individual health insurance with an HRA:

  • Step 1: Cancel any existing group health plan, if needed, and set up an HRA to give each eligible employee a fixed healthcare allowance
  • Step 2: Employees purchase their own individual health plan with their own money
  • Step 3: Employees submit proof of their premium expense and are reimbursed for their premium up to their HRA allowance

Ready to offer your first HRA? See how PeopleKeep can help!

HRAs PeopleKeep offers

PeopleKeep offers three types of HRAs that work for every organization size and budget, so no matter what your organization looks like, there’s an option for you.

  • Qualified small employer HRA (QSEHRA)
    • A small business HRA designed for organizations with fewer than 50 full-time employees
  • Individual coverage HRA (ICHRA)
    • An HRA for organizations of all sizes that can work as a stand-alone benefit or as an option for employees who don’t qualify for the group health plan
  • Group coverage HRA (GCHRA)
    • A supplemental HRA to go alongside a group health plan to help cover the costs that aren’t fully paid for by the group plan

Not sure which HRA is right for you? Take our quiz to find out!


Offering tax-free reimbursements on individual health insurance and qualifying out-of-pocket medical expenses through an HRA is a win-win for both you and your employees.

While a reimbursement model is a shift in how employers traditionally offer health insurance coverage, making the change to a more cost-effective health benefits solution is more than worth it, and empowers small and medium size businesses to offer a competitive contribution to their employees’ healthcare.

This article was originally published on August 14, 2015. It was last updated July 12, 2021.

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Gabrielle Smith