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.
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.
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.
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.
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.
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.
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
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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