Did you know you could reimburse for health insurance with a small business HRA? A small business HRA is a tax-advantaged tool that allows businesses with less than 50 full-time employees to reimburse their team for individual health insurance. It’s changing the way we think about health benefits for small business. And we think that’s a very good thing.
If you’re a small business owner and are considering offering your growing team small business health insurance, a small business HRA might be just what you are looking for. Here’s what to know about this new, superior model of health benefits.
What is a small business HRA?
The small business HRA (also known as a Qualified Small Employer HRA, or QSEHRA) was created when the bipartisan 21st Century Cures Act was signed into law by President Obama. It’s a new type of health reimbursement arrangement specifically designed to help small businesses afford competitive benefits packages for employee recruitment and retention.
Can I reimburse for health insurance with a small business HRA?
Yes! And it’s tax free.
Small business HRAs are sometimes referred to as defined contribution health insurance or 401(K)-style benefits. Defined contribution means the business owner sets an amount each month to reimburse employees for their own individual policies. Many small businesses have been doing this, but in the past you’d have to pay payroll taxes and employees would have to pay income taxes, which knocks out a lot of the value.
In contrast to small group plans, which are expensive, one-size-fits-all and unpredictable, this new employee insurance model allows the business owner to control the monthly costs while still offering a great benefit.
How do small business HRAs work?
The way small business HRAs work is streamlined and simple. Here’s how.
- Employer decides how much money to contribute each month and what they will reimburse.
- Employer provides employees with standard information about how the small business HRA works.
- Employees choose an individual health plan that meets MEC requirements.
- Employer outsources certain administrative functions like verifying coverage (spoiler alert: that’s where Take Command comes in!).
- Employee pays insurance premiums, visits their doctor, picks up a prescription (or all of these), then submits the receipt to their employer.
- Employer reimburses the employee for their qualified health expenses. This can automatically be reimbursed through payroll!
With a small business HRA, the employer has predictable costs for their employees’ coverage, can avoid the hassle of selecting and managing a group plan, and is effectively out of the health insurance business.
Is a small business HRA right for me?
There are a few factors to consider when deciding on benefits for your company. If you are planning on growing, it’s good to have a benefits plan in place. A small business HRA is a scalable benefit, meaning it can work for a (very) small company all the way up to 50. And even when you hit 50 employees, there is another HRA called an Individual Coverage HRA that will allow you to continue to reimburse employees in a similar way.
Certain markets are better set up for widespread adoption of small business HRAs. Things to consider are how many carriers are in your area, what the premium trajectory has been, or what the average premium costs are.
If you are searching for a hassle-free way to offer affordable benefits, a small business HRA is certainly worth considering. Use our QSEHRA tax savings calculator to see how much you could save, or take a spin with our QSEHRA plan designer tool to see what your monthly costs would look like.
If you’re ready to get started, setting up a small business HRA is a breeze! Our team is here to help clear up any confusion surrounding small business health insurance options. Don’t hesitate to give us a shout via our chat feature on the website. We would be happy to help.