What is an hour bank arrangement for healthcare?

Because those who work in the construction industry face high risks of injuries and illnesses, it's important to provide them with healthcare benefits so they can access preventative care and get help with costly medical bills. But, traditional group health plan coverage doesn't always fit everyone's needs or budgets. If you're looking for a more cost-effective solution, an hour bank arrangement may be the answer. This arrangement can help you better manage healthcare costs and provide quality benefits to your employees.

In this article, we'll go over the ins and outs of hour bank arrangements for employees and how they can benefit your construction firm. We'll also look at a more popular option called health reimbursement arrangements (HRAs), which can help you save money with ease.

Takeaways from this blog post:

• Hour bank arrangements for healthcare are a cost-effective way for construction firms to provide benefits based on the number of hours employees work per day.
• Hour banking can help control healthcare costs for both employers and employees. They also provide more flexibility and control over benefits.
• Health reimbursement arrangements (HRAs) offer a simpler and more consistent coverage option for W-2 employees.

How does an hour bank arrangement for healthcare work?

An hour bank arrangement for healthcare is a popular system most commonly used in the construction industry. It’s a method of providing consistent healthcare benefits to employees whose work hours may be inconsistent. In this model, employees can bank extra hours¹ that surpass the required eligibility for coverage. These excess hours can then make up for periods of low work and insufficient hours.

Let's take Brian as an example. He starts working on January 28 and accumulates 150 hours in the first quarter. In the second quarter, he works 350 hours, and in the third quarter, he works 250 hours. Brian enrolls in the plan on October 1. Brian wasn’t eligible until the fourth quarter due to insufficient hours. The period from July to September is a waiting period. Brian achieves eligibility for three quarters because the hours carry forward.

With an hour bank system, a portion of an employee’s hourly pay is deducted² to pay for coverage instead of having them pay for an insurance plan at a set monthly rate. Once an employee works the minimum amount of hours needed to cover their share for health insurance coverage in a given month, any excess is deposited into an account, or "hour bank," for the employee to use toward future healthcare coverage.

What are the benefits of hour bank arrangements for healthcare?

There are several benefits to implementing an hour bank arrangement for healthcare for construction firms. First, hour banking can help control healthcare costs for both the employer and employees. By saving a portion of employees’ excess hourly pay for future health coverage costs, employers can avoid paying the full cost of health insurance premiums during periods of low work activity. This can be especially beneficial for construction firms, where the amount of hours worked can fluctuate based on project timelines and deadlines.

Additionally, an hour bank arrangement gives employees more stability when it comes to their healthcare benefits.

Are you better off using a health reimbursement arrangement (HRA)?

Hour banking is a unique way of saving money for healthcare needs. It takes a lot of time, planning, and effort to make sure you're accounting for each employee's hours. As a business owner running your own construction firm, you already have enough on your plate.

Plus, if your employees have unexpected illnesses or get into accidents that lead to unexpectedly long absences from work, they may not have enough hours banked to pay for their share of health coverage for the month, leading to a lapse of coverage or you having to pay more to keep them covered.

If you're looking for cost-effectiveness in a health benefit for your W-2 employees, an HRA is your best option. This IRS-approved, employer-funded health benefit is much easier to use. It's also a way to provide more consistent coverage for your employees.

With an HRA, you set aside a tax-free allowance for your employees to use on more than 200 eligible medical expenses, including individual health insurance premiums. This allows your employees to purchase the individual health coverage that best fits their needs. You simply reimburse them for their individual premiums instead of purchasing group health plan coverage for them.

Here are three of the most common HRAs you can offer:

• The qualified small employer HRA (QSEHRA): The QSEHRA is for small businesses with fewer than 50 full-time equivalent employees (FTEs). All W-2 employees qualify for this benefit. However, they must have a health plan that meets minimum essential coverage (MEC) to participate. The IRS sets maximum annual contribution limits for the QSEHRA.
• The individual coverage HRA (ICHRA): The ICHRA works for employers of all sizes. Employers have the option of providing an ICHRA as a separate benefit or as an alternative health benefit for employees who aren't eligible for your group health insurance plan. Unlike a QSEHRA, ICHRAs have no maximum contribution limits, meaning you can offer your employees as much as you’d like in allowances. Plus, employers can differ allowances and benefit eligibility with 11 employee classes, such as full-time or part-time workers.
• The group coverage HRA (GCHRA): The GCHRA, also known as an integrated HRA, supplements group health insurance. It's a great way to enhance high deductible health plans (HDHPs) that come at a greater cost to your employees. A GCHRA helps cover out-of-pocket expenses your group plan doesn’t fully pay for. This includes expenses before your employees meet their deductibles, coinsurance, and copayments.

When you offer an HRA through PeopleKeep, we handle the hard work for you. We're experts in HRA administration and help thousands of employers easily reimburse their employees with our hassle-free software. Our team generates legal plan documents, reviews employee expenses based on IRS guidelines, and sends necessary notices automatically for your convenience. This gives you more time to focus on running your business.

Can you offer a health stipend at your construction firm?

Many construction firms employ independent contractors. Unfortunately, you can’t offer an HRA to non-W-2 employees.

If you have 1099 employees, a stipend can help. With a taxable health stipend, you can offer them an allowance for their medical expenses, similar to how you would with an HRA. However, unlike an HRA, a health stipend is extra compensation in an employee's paycheck that they can spend however they like. While you may ask your 1099 employees to spend their funds on health insurance, you can't require them to do so.

Why should you offer health coverage as an employee benefit?

Year after year, health benefits are at the top of the list of what employees want most. According to PeopleKeep's 2024 Employee Benefits Survey, 92% of employees ranked health benefits as important. Offering this highly desired benefit can boost job satisfaction and improve employee retention, which is crucial in a competitive industry like construction. On the other hand, if you fail to offer your workers health coverage, don't be surprised if they look for better opportunities elsewhere.

Conclusion

Overall, implementing an hour bank arrangement for healthcare can be a cost-effective and flexible option for providing healthcare benefits to employees in the construction industry. However, if you're looking for an easier solution for your W-2 employees that will still save you money, an HRA is the way to go for employer-sponsored coverage. By utilizing an HRA, you can better support your employees' health and well-being while also managing costs for your company.

1. https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/public-comments/tr-12-01/00037.pdf
2. https://www.his-inc.com/business/products-for-businesses/hour-bank-administration/