Small
business owners can now take advantage of Health Reimbursement
Arrangements, or HRAs, as a way to cut their health insurance
expenses in half. As health insurance premiums continue
to grow, fewer small businesses are offering group coverage
to their employees. For small businesses with healthy
employees, establishing HRAs can be a great way to help
their employees obtain permanent, portable individual
health insurance at a much lower cost than conventional
group coverage.
What
is a Health Reimbursement Arrangement?
A
Health Reimbursement Arrangement, or HRA, is simply an
agreement by an employer to reimburse the employee for
their health insurance premiums and other specified medical
expenses. This is considered to be a tax-free fringe
benefit for the employee.
Because
family and individual health insurance plans are underwritten
(meaning that the insurance company has the option of
excluding a condition or declining an application all
together), they are much less expensive than are
group plans. In fact, they typically cost less than
half as much.
HRAs
are also known as Section 105 plans, named after the section
in the U.S. Tax Code that governs them.
How
HRAs Work
I
actually wrote about HRAs in the March 2007 Maximize Your
HSA, but my focus there was on self-employed people who
only insure themselves or their family. This time
I want to talk about how important this tool can be for
small business owners with employees.
In
today's business climate employees are quick to go elsewhere
if they see a better opportunity. Providing good
benefits is essential to retaining the best employees,
but group health insurance can be too expensive for some
small business owners.
An
HRA allows you to reimburse your employees for their individual
health insurance expenses, taking you out of the middle.
Employees carry their own private coverage which is totally
portable and not tied down to their employment.
You
no longer have to administer the plan, and you no longer
have to shop it every year. When employees carry
their own private coverage, there are also no COBRA issues
to deal with when employment terminates.
When
you establish an HRA for your employees, you define what
expenses that you will be reimbursing, and how much you
will reimburse. For example, you may say that you
will reimburse up to $300/month for covered health insurance
and medical expenses. If the employee uses less
than that, any excess credit accumulates for future disbursement.
When
the employee has a qualified medical expense, they would
submit it to you for reimbursement, up to the amount of
their HRA balance. You then simply cut a check for
the amount of the reimbursement. It's that simple.
You count it as a business expense, and your employee
pays no taxes on that reimbursement.
Keeping
Your Employees Healthy
Most
of your employees will incur medical expenses every year,
including dental expenses and eye glass expenses.
Through an HRA you can reimburse your employees for these
expenses with tax-free dollars.
The
best businesses are about more than just selling widgets
and making money. The more the business cares about
the employees and the more the employees care about the
business - the more fun we have and the more successful
we are. So why not reimburse for preventive benefits
like smoking cessation programs, weight loss programs,
or even just annual physicals.
The
great thing about HRAs is that you are the architect.
You get to decide what expenses you will reimburse.
You also have the right to exclude part time employees,
employees who have worked for you for less than three
years, and those under age 25.
How
To Establish Your HRAs
When
you establish an HRA, all you have to do is furnish a
Summary Plan Description to all plan participants.
The Summary Plan Description simply describes who is eligible,
and the benefit limits that can be reimbursed. For
instance, it may list the minimum number of hours they
must work, their minimum age, and the number of months
they must be employed. It will list the benefit
limit for reimbursement of health insurance premiums,
out-of-pocket expenses, term life premiums, and possibly
other expenses. You must also keep a Plan Document
in your files, which documents the same information.
You
can have an accountant set up the HRAs, or you can do
it online through HSA for
America at: http://www.HSAforAmerica.com/HRA-signup.htm
The
cost is $297 for the first employee, and $97 for each
additional employee. Each employee will receive
a complete Summary Plan Description, and you will receive
login information where you can manage your account.
Each
year you can review your program, and adjust the expenses
that the HRA will cover if you like. Because we
have systemized the process the program is easy, fast,
and inexpensive.
A
Better System For Employer and Employee
If
you have a small business of healthy employees, an HRA
may be a no-brainer. Keep in mind that because your
employees will be applying for individual health insurance
coverage instead of group coverage, their premiums will
be much lower but the plans will each be individually
underwritten.
Your
employees will each get to choose the insurance plan and
deductible that best fits their individual needs.
Once everyone is approved they will have permanent coverage
that is not tied down to their employment. And you
can get out of the insurance business, for good.
If
you would like more information, see our Additional
Benefits page or drop us an email and let us know
how we can help.
