Employee insurance is a great way for business owners to recruit and retain talent, especially in today's competitive job market and in the midst of the Great Resignation. Personalized benefits through a health reimbursement arrangement are flexible, budget-conscious benefits options for businesses large and small.
We think HRAs are great for many reasons, but one is that they save you money!
They are less expensive than the one-size-fits-all group plans that have historically been available, you don’t have to worry about participation rates, and they are tax-advantaged.
Your employees are really going to appreciate the personalized benefits that an HRA can offer: an HRA allows them to choose their own plan and keep their favorite doctors, plus, they can take their plan with them if they leave.
What to know about employee insurance reimbursement
A health reimbursement arrangement, or HRA for short, refers to an arrangement between employers and their employees to reimburse for medical expenses and/or insurance premiums tax-free. The purpose is for employers to help their employees afford rising healthcare costs.
Sometimes referred to as “401(K)-style” insurance, two recently created HRAs (we’ll break those down for you in a bit!) allow an employer to reimburse for medical expenses and/or insurance premiums on a tax-free basis. Under this arrangement, employees purchase their own health insurance on the open market and then submit claims to their employer to get reimbursed for the cost of their premium and if allowed, all qualified medical expenses.
What's the average cost for employee insurance?
Employee insurance cost is one of the first questions we hear when talking to business owners. According to Kaiser Family Foundation research, the average cost of employer-sponsored health insurance for annual premiums was $7,188 for single coverage and $20,576 for family coverage. What percentage the company pays of those premiums is up to the employer and varies widely. Average cost for employee insurance goes up each year.
Employee insurance for small business
When it comes to employee insurance for small business, there are two kinds of health reimbursement arrangements that you need to know about. Sure, traditional small group plans are another option here but participation challenges and pricey renewals each year make them a poor fit for a small business.
- The qualified small employer HRA (QSEHRA) requires your business to be small, with less than 50 Full Time Equivalent employees, and you can't offer a group plan at the same time. If you meet those qualifications, you can use an HRA administration tool (like ours!) to create your QSEHRA, decide how much you’ll reimburse each month (up to the contribution limits), let your employees choose the plan that works best for them, and reimburse them when they submit receipts!
- The individual coverage HRA (ICHRA) is almost like a “super-charged” version of the QSEHRA. Instead of being capped at 50 employees, employers of any size can set up an ICHRA for their teams. There are also no contribution limits with this HRA. Another key differentiator from HRAs in the past? ICHRA allows business owners to customize their reimbursements across different classes of employees. While everyone must be treated fairly within a certain class, reimbursement rates can vary between full time, part time, seasonal, remote, etc.
Employee insurance costs: HRA vs. group plans
- Transfers employer responsibility for health risks. If you would rather not try to manage employee healthcare spending, know that you can still offer generous benefits and your costs are fixed because you have no risk to manage. Since you are offering a fixed amount per month, there’s no need to spend time & mental energy trying to implement wellness programs & manage your employees’ healthcare spend to control your costs on a traditional group health plan.
- Transfers health decision making from employer to employee. No more trying to find a plan that makes everyone happy.
- More personalized plan choices for employees. No employee is locked into a plan that might not be a good fit for them. They can also take their plan with them if they leave.
- Simpler and more flexible plan design options. The newer flavors of HRAs have built in design capabilities to custom tailor an HRA to a business's needs. An ICHRA, for example, has eleven classes available for scaling benefits. With QSEHRA, employers have to treat full-time employees fairly, but there are a lot of levers they can pull on how much to reimburse and who gets to participate.
- Greater budget control. You or your clients set the allowable reimbursement rates and your costs will never be greater than that. And if employees don’t buy insurance or don’t use all of their allowance? The employer keeps the money.
- No participation concerns. If employees decide not to use the benefit, there is no cost or concern for the plan.
How to get started with employee insurance reimbursement
Take Command is a recognized leader in QSEHRA administration, ICHRA administration, and small business HRA tax strategy. Read up on your HRA options. Our comprehensive guides should answer most of your questions about the ICHRA and the QSEHRA. Check out a side-by-side comparison of group plans and the specific HRAs mentioned above. The QSEHRA is here. The ICHRA is here.
And if you need to chat with our team, we are here to help online.
