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.
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.
Health
Reimbursement Arrangements 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 Health Reimbursement Arrangements 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 Health Reimbursement Arrangements 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 Health Reimbursement Arrangements
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 Health Reimbursement Arrangements, or you can do
it online through HSA for America
at: http://www.HSAforAmerica.com/HRA-sign-up.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.
