The following are excerpts from our free eBooks, The Comprehensive Guide to the Small Business HRA and the Small Business Health Insurance Reimbursement 2017 Annual Report.
Two common questions we receive are “How much does health insurance cost?” and “How do I make an HRA work for my business?” If you’re ready to offer employees more flexible options for health insurance, setting a budget for your qualified small employer health reimbursement arrangement (QSEHRA), also called the Small Business HRA, is an important step.
Determine Your Budget
As long as you remain at or below the federal maximum allowance caps ($5,150 annually for the self-only allowance and $10,450 annually for the family allowance in 2019), the budget you set is entirely up to you.
If you were previously offering employees group health insurance, there are two strategies you can use to budget for a QSEHRA.
1. Ensure Immediate Company Savings
One strategy is to reduce the company’s health benefits costs by offering lower annual allowances. For example, if you were spending $4,800 per employee annually under your group health insurance plan, you can save the business 50 percent by cutting this amount to $2,400 per employee under an HRA.
Keep in mind, however, that the purpose of benefits is to support your recruitment efforts and improve employee retention. Slashing benefits might save you money in the short term, but you risk alienating employees over time.
2. Give Maximum Budget to Employees
A second strategy is to allocate the same amount toward your HRA annual allowance as you paid under your group health insurance plan. Keep in mind that the business only incurs costs if workers use their monthly allowance to pay for eligible medical expenses. The company keeps any funds employees don’t use. For example, if the business makes $100,000 in allowances available but employees only end up using $80,000, the company keeps the $20,000 difference.
Employees using health insurance reimbursement typically utilize about 87 percent of the allowance granted them through their employer, according to our Small Business Health Insurance Reimbursement 2017 Annual Report.
Set Monthly Allowances
When you know how much you can spend, you can set monthly allowances—the amount of money you’ll give employees each month to reimburse their medical costs.
There are two kinds of allowances available:
- Self-only. For single workers with no dependents
- Family. For married employees, employees who have dependents, or both.
See What Other Businesses in Your State and Industry Offer
As you consider how much to give your employees for their monthly QSEHRA allowance, it can help to take a look at what other businesses in your state and industry offer.
In our Small Business Health Insurance Reimbursement 2017 Annual Report, we analyzed allowance amounts by region, state, business size, and industry.
As we discuss in the report, allowance amounts vary widely from state to state.
For 2016, the highest allowances were in:
- Hawaii: $833
- Rhode Island: $797
- Washington (state): $782
- New Jersey: $745
- Alaska: $657
States with the lowest allowances include:
- South Dakota: $311
- West Virginia: $356
- New Mexico: $366
- Maine: $379
Allowances also span a wide range depending on the company’s industry.
The industries offering the highest HRA monthly allowances include:
- Religious institutions: $833
- Biotechnology: $715
- Certified public accountants: $688
- Health: $636
- Construction: $609
By contrast, industries offering the lowest allowances in 2016 include:
- Vision: $197
- Chemicals: $292
- Food and beverage: $346
- Hospitality: $360
To learn more about choosing a QSEHRA for your business, including information about how to set a budget for the HRA, download our free eBook, The Comprehensive Guide to the Small Business HRA.
How much does health insurance cost for your business? Let us know in the comments below.