The
new way that small businesses are dealing with health insurance is through
a 105 HRA Plan. By reimbursing your employees for individual
health insurance coverage instead of expensive group health insurance, you
should be able to cut your health insurance cost in half. Employees
end up with less expensive, permanent coverage that they can take with them
if they ever leave the business.
The enactment of the new health care reform law is rapidly increasing the number of businesses using this strategy. That is because employees with pre-existing conditions can now join a federal risk pool, and by 2014 will be able to sign up for individual coverage regardless of pre-existing conditions. The law also offers large federal subsidies to employees earning up to 400% of the federal poverty level (up to $88,200 for a family of four), as long as they are not offered employer-provided coverage.
What
is an HRA?
An
HRA is also known as a defined health benefits plan. It is simply an
arrangement where an employer reimburses employees tax-free for qualified
medical expenses, including health insurance premiums. HRAs are also
known as Section 105 plans, named after the section in the U.S. Tax
Code that governs them.
According
to IRS Publication 9691, “HRAs are employer-established benefit plans.
These may be offered in conjunction with other employer-provided health benefits.
Employers have complete flexibility to offer various combinations
of benefits in designing their plans. You do not have to be covered
under any other health care plan to participate.”
On
June 26, 2002, the IRS issued Notice 2002-45 and Revenue Ruling 2002-41 that
opened the door for employers to legitimately reimburse individual health
insurance premiums to their employees as a tax-free fringe benefit.
Since individual health insurance premiums can be up to 50% less than group
health insurance premiums, employers by the thousands are dropping group health
insurance and establishing HRA plans to allow employees to go out and buy
their own coverage.
With
an HRA:
-
Each
employee receives a monthly allowance, such as $200 per month, from their
employer for reimbursement of qualified medical expenses. Whatever is
not spent accumulates for future use.
-
The
employee submits claims to their employer’s Plan Supervisor, or a Third
Party Administrator (TPA).
-
The
employee receives reimbursement for their approved claims, up to the amount
of their HRA balance.
You
as the employer have a lot of flexibility in setting up the account.
You can set the minimum number of hours the employee must work each week,
how old they must be, and how many months new employees must wait before being
covered.
You
also get to decide what you will reimburse. In addition to health insurance
premiums, you could offer to cover term life insurance or dental coverage,
maternity expenses, or other out-of-pocket medical expenses. You also
establish the maximum amount in each category that you will reimburse.
Under
a health reimbursement account, the employer provides funds, not the employee.
When you set up the HRA, you get to decide whether or not to allow funds to
roll over at the end of the year. If you like, you can choose to allow
former employees, including retirees, to have continued access to unused reimbursement
amounts.
Health
reimbursement accounts remain with the employer and do not follow an employee
to new employment, but the employee can take their individual health insurance
plan with them.
How
An HRA Will Save You Money
According
to recent surveys by the Kaiser Family Foundation, employer-sponsored health
insurance costs an average of nearly $14,000 per year. By contrast,
the average family policy through HSA for America costs less than $5000.
An
HRA can be set up to cover health insurance premiums and other medical expenses
that you designate. Let’s assume that you agree to reimburse the
following expenses:
Health
insurance premiums | $5,000 |
$100
deductible accident plan | $300 |
Routine
physicals and screening exams | $500 |
Life
Insurance Premiums | $500
|
Total
Medical Costs | $6,300
|
If you
have a section 105 HRA set up, the entire $6,300 would of course be considered
a business expense.
It would also be considered to be a tax-free fringe benefit for
your employee. So instead of spending $14000, in this example you
are cutting your costs to just over $6000.
And
because you set the limit, you can establish whatever reimbursement level
you like. Many employers set up their HRA to reimburse $150 - $200 per
month, per employee. You could also cover dental expenses, smoking cessation,
or other out-of-pocket medical expenses, up to the limits that you define
in the HRA.
If
instead of paying these expenses through an HRA you had simply paid your employee
an additional $6300, they would have to pay taxes on that money, which could
amount to over $2500 depending on their tax bracket. But because these
expenses were paid through the HRA, the entire $6300 is considered to be a
tax-free fringe benefit.
How
Does An HRA Work?
HRA
plans are also now extremely easy to set up, and to manage. As an employer,
you provide a fixed monthly tax-free contribution to a Health Reimbursement
Arrangement (HRA) for each participant. The HRA enables employees to
obtain reimbursement for qualifying medical expenses, including health insurance
premiums.
To
set up your HRA, you can fill out our online
HRA enrollment form. There you will establish reimbursement limits,
and qualification parameters. Our HRA specialists will then set up all
plan documents, and an online account where you can track reimbursements.
Your
employees can then select an affordable health insurance plan customized to
their own needs and budget. They can use their tax-advantaged HRA funds
to choose from hundreds of individual plans ranging from a traditional copay
plans to high-deductible HSA plans.
Depending
on the state they are in, they can choose from providers such as Blue Cross
Blue Shield, Aetna, United Healthcare, Time, Humana, and many more.
They can enroll online, or using our toll-free number be assisted by our personal
benefit representatives. Instant quotes and information on all plans
are available at www.HSAforAmerica.com/instant-quote.htm.
Each
month they will submit their claims to the person you designate as the plan
supervisor. They will then be reimbursed for their qualified expenses.
What
is the Impact of Individual Coverage
Instead of Group Coverage?
When
you offer an HRA, you will not be offering a “company health insurance
plan”. Instead what you will have is a voluntary program dependent
on the employees own wishes and state of health. Your only function
is to reimburse the employee for the incurred expense, up to the limits established
in the HRA. The employer cannot contribute or provide funds over and
above the HSA that could be used to pay for the benefit.
Because
the employees are signing up for individual coverage, they are free to choose
the type of plan that best meets their needs. They may wish to get a
traditional co-pay plan, or a less expensive high-deductible HSA-qualified
plan. Once they are approved they can take their coverage with them,
even if they later leave the company.
There
are no COBRA issues, there is no need to set up enrollment procedures for
a group health plan, and you’ll no longer have to shop your health insurance
every year.
What
Expenses Can an HRA Reimburse?
The
main reason for establishing an HRA is to be able to reimburse your employees
for the cost of individual health insurance premiums. But you can also
designate the plan to cover other expenses as well, including…
- Dental
coverage
- Vision
coverage
- Rx
benefits
- Medicare
and long-term care premiums
- Disability
premiums
- Life
insurance premiums for up to $50,000
- Preventative
care benefits such as annual physicals, preventative screenings, weight loss
programs, or smoking cessation programs
- Alternative
care such as chiropractors and acupuncture
- Over-the-counter
medication when prescribed by a physician
- Other
out-of-pocket medical expenses
Which
Employees Get to Participate in the HRA?
An
employer can exclude employees using the guidelines outlined in Code Section
105 (h). Specifically, you may if you wish exclude:
- Employees
who have not completed 3 years of service;
- Employees
who have not attained age 25;
- Part-time
or season employees working less than 7 months per year or 25 hours a week
This
allows you to customize the HRA to your needs, and get the most out of your
investment.
How
to Combine a Low-Cost HSA Plan with Your HRA
Most
people today are setting up health savings accounts, or HSAs, as a way to
lower their costs and save for the future. An HSA is available to anyone
with a qualifying high-deductible health plan. If you have an HSA, you
can deposit up to $5800 into a tax-deductible account, which can then be used
to pay future medical expenses. If the money is not used, it is yours
to keep and just grows tax-deferred like an IRA.
HSA
plans offer lower premiums, they save you money on taxes, and they are the
very best tax-advantaged way to save for future medical expenses you may incur
during retirement. By combining an HSA with their HRA, your employees
will be able to increase their tax benefits even further, and avoid withdrawing
money from your HSA. This will enable them to take full advantage of
the tax-deferred growth that an HSA offers.
Though
some advisors may tell you that you cannot have both an HSA and an HRA, this
is not the case. An HRA does not disqualify someone from having an HSA,
if the expenses reimbursed by the HRA are limited to medical items allowed
for first-dollar coverage on an HSA plan3.
So,
with an HSA they can have an HRA that reimburses directly for expenses or
for insurance covering:
Accident
coverage
Hospital
indemnity coverage that pays a set amount per day you are in the hospital
Specific disease care that pays a set amount if you get cancer or some other
specific disease
Dental and vision care
Wellness and preventive care, such as:
- Annual
physicals and diagnostic screenings
- Routine
prenatal and well-child care
- Child
and adult immunizations
- Tobacco
cessation programs
- Obesity
weight-loss programs
The
HRA may not cover expenses that are meant to apply directly toward
the deductible of their HSA-qualified plan. So it cannot reimburse for
doctor visits, prescription drug coverage, or hospital charges prior to meeting
their deductible, if they want to combine it with an HSA plan.
How
An HRA With An HSA Will Save Your Employees Even More Money
Assuming
the same example as above, let’s look at how having an HSA along with
their HRA could save your employees an additional $1,892, or nearly $5,000
over having neither.
Health
insurance premiums | $5,000 |
$100
deductible accident plan | $300 |
Routine
physicals and screening exams | $500 |
Life
Insurance Premiums | $500
|
Total
Medical Costs | $6,300
|
Reimbursing
these expenses through the HRA again makes them a tax-free fringe benefit,
saving your employee Federal income taxes, state income taxes, and FICA.
Assuming they are in a 28% income tax bracket and a 5% state income tax bracket,
this will save them $2,561 compared to if they had earned the $6,300 as taxable
income.
With
an HSA a family can deposit up to $5,800 into their account, for which they
get a full write-off on their federal income taxes, as well as their state
income taxes in all but four states4. Assuming a 28.5% Federal income
tax and a 5% state income tax, 33.5% of $5,800 results in an additional tax
reduction of $1,943.
So
the end result in this example is that having an HSA plan in conjunction with
their HRA is saving them an additional $1,943 over having just an HRA, and
nearly $4,500 over paying for their health insurance
on their own.
How
Much Paperwork is Involved?
HRAs
are very easy to establish and manage. Our program makes the process
very simple, and ensures that you are in compliance with all federal regulations.
Is there a fee charged to the business when employees get federally subsidized coverage?
If your business has more than 50 employees, then you will be charged $3000 per year by the government for each employee receives the subsidy, up to a maximum of $2000 per year for all employees. Employers with less than 50 employees are not charged anything if their employees receive the subsidy.
To
establish an HRA, the IRS requires the following:
- A Plan Document
- A Summary Plan
Description which must be furnished to all plan participants
When
you apply for an HRA through HSA for America, the framework, documentation,
and administration is provided, making offering the employee benefit plan
simple and easy to do. All you have to do is fill out a simple questionnaire
which takes about 5 minutes. You will then receive a pdf copy of all
documents and login information to 105 Concepts, where you can manage the
account.
Each
year you will then:
- Review
your program, giving you the opportunity to adjust the expenses your HRA will
cover, or to re-elect the same benefits.
- If
a change is made, a new Summary Plan Description is provided detailing new
plan elections.
Overview
of HSA for America’s Small Business 105 HRA Plans
HSA
for America is known for helping small business owners save money, and making
the process easy. Here’s a quick overview of how this all works:
- You as the employer
define your tax-free contribution levels
- Employees
receive reimbursements for qualified medical expenses, including health insurance
premiums
- At
your option, the HRA can be set up so that unspent amounts can accumulate
for future medical expenses, retirement medical costs (including premiums)
and you can also allow a roll-over of unused funds from year to year
- HSA for America’s
personal benefit representatives help the employee select the plan that best
fits his/her needs and budget
Advantages
for employers
The
primary reason small businesses are setting up HRAs is of course because they
can save 50 percent or more on their current and future healthcare spending.
But there are other important advantages in moving from an overpriced group
plan to separate, individual policies for everyone in your company:
-
You can set up
your HRA as you like, including customized contribution amounts, employee
eligibility, and reimbursement frequency.
Advantages
for employees
If
your employees are in good health and can qualify for individual health insurance
coverage, they will love having individual coverage.
- Employees
enjoy the peace of mind of knowing that their policy is permanent and portable.
It can be taken with them if they move or lose their job, and is not tied
to their employment.
- They
get to choose individualized healthcare coverage best fitting their needs
and budget. They can choose a higher or lower deductible, an HSA plan
or a co-pay plan, and they can choose to add riders like maternity coverage.
- Choice
of dozens of plans from brand name providers such as BlueCross BlueShield,
Aetna, United Healthcare, Time Insurance, Humana, and many more
- The
cost is much less for expensive group insurance coverage, whether paid for
by the employer or employee.
- They
will receive personal assistance in choosing and applying for coverage from
one of our experienced HSA for America benefit representatives.
HRAs
– The Future of Health Insurance
The
move from expensive employer-sponsored group plans to affordable individual
and family policies is already under way. This will accelerate as more
employers take advantage of section 105 HRA plans to reimburse employees for
premiums on individual health plans using pre-tax dollars. This can
effectively lower the after-tax price of such policies by 50 percent or more.
How
to Get Signed Up
Avoid
the annual burden of a health insurance plan design, selection, and enrollment,
and cut your expenses by $8000 per employee. You could have your attorney
or CPA set up your HRA, but the costs would likely be $1000 or more.
Because the system we use is a fully integrated web application which allows
us to build a custom HRA plan with the click of a mouse, we can put together
your HRAs much more quickly, and much less expensively. Here’s
how to get started:
- Set
up your HRA quickly online by going to our HRA
Signup form, or give us a call at 866-749-2039 and we'll be happy to help.
The cost is only $297 for any number of employees up to 99. The process
should take no more than 15 minutes. We will then email all relevant
documents and login information so you can manage your own accounts.
- Have your
employees apply for an individual health insurance plan at HSA
for America. Instant quotes and online applications are available
for dozens of plans.
- Get
out of the health insurance business, for good!
An
HRA plan is ideal for small businesses with employees that are all in good
health. They are easy to establish and manage, your employees get permanent
health insurance coverage, and your business will save thousands
of dollars. If you have any questions or need some assistance, please
email us at info@HSAforAmerica.com,
or give us a call at 866-749-2039.
Footnotes
- A
good basic reference is IRS publication 969, which can be found on our HSA
Government Information page.
- Insurance
premiums can go back to beginning of year. Other reimbursements start
when HRA starts.
- Under IRC Section
223, an eligible individual cannot be covered by a health plan that is not
an HDHP unless that health plan provides permitted insurance, permitted coverage
or preventive care. A health FSA and an HRA are health plans and constitute
other coverage under section 223(c)(1)(A)(ii). Consequently, an individual
who is covered by an HDHP and a health FSA or HRA that pays or reimburses
section 213(d) medical expenses is generally not an eligible individual for
the purpose of making contributions to an HSA. See Rev. Rul.
2004-38, 2004-15 I.R.B. 717, which holds that an individual who is covered
by an HDHP that does not provide prescription drug coverage and a separate
prescription drug plan or rider that provides benefits before the minimum
annual deductible of the HDHP has been satisfied is not an eligible individual
for HSA purposes.
- See our
HSA State Income
Tax page for information on which states allow a deduction for HSA
contributions.
Legal
Notice:
While
all attempts have been made to verify information on this page, neither the
author nor the publisher assumes any responsibility for errors, inaccuracies,
or omissions. Any slights of people or organizations are unintentional.
If advice concerning tax, legal, compliance, or any related matters is needed,
the services of a qualified professional should be sought. This is not
intended for use as a source of legal, or accounting advice.
Copyright
© 2010 Wiley Long Enterprises, Inc., all rights reserved.
HSA for America
1001-A East Harmony Rd #519
Fort Collins CO 80525
www.HSAforAmerica.com
