Can an employer reimburse for health insurance costs? Health reimbursement arrangements make it possible! Employers now have more flexibility when it comes to reimbursing employees for health insurance, tax-free. Sound too good to be true? Let’s discuss your options for health reimbursement arrangements!
Can an employer reimburse for health insurance costs?
The answer to that is yes! An employer can reimburse for health insurance costs through an HRA.
An HRA allows business owners to reimburse their employees on a tax-free basis for health insurance premiums or qualified medical expenses. Most importantly, HRAs allow business owners to avoid the penalties and fees and taxes we discussed.
The mechanics of an HRA are surprisingly simple. At a high-level, employees pay for their own health expenses and employers reimburse them. Here’s how it works:
- Employers design their plan and set reimbursement allowances
- Employees pay for their own health insurance and medical bills
- Employees provide proof of their expenses
- Employers reimburse the employee up to the set limit
→ Learn more about how an HRA is funded.
→ Compare HRAs vs Group Plans.
→ Read more about Employer HRA Contributions.
What types of HRAs are there?
QSEHRA: a Qualified Small Employer HRA allows small employers to set aside a fixed amount of money each month that employees can use to purchase individual health insurance or use on medical expenses, tax-free. The key thing to remember here is that all employees must be reimbursed at the same level. The QSEHRA is designed for employers with less than 50 employees to reimburse for premiums and medical expenses if the plan allows.
ICHRA: an Individual Coverage HRA allows employers of any size to reimburse any amount per month for healthcare expenses incurred by employees on a tax-free basis, starting at any time of the year. The distinguishing element of this HRA is that employees can be divided into an unlimited number of classes, like hourly vs. salary or even based on location, and be reimbursed at different levels. The ICHRA is for companies of any size. There are no limits to how much an employer can offer for reimbursement.
→ More on HRA health care options.
How can an employer reimburse for health insurance costs?
With Take Command's platform, employees can just snap a picture of their receipts for reimbursement. Additionally, employers have a lot of flexibility over what is reimbursed. Understanding these options can go a long way towards helping the employer achieve their objectives and keep their budget in check, so let’s look at those!
- Insurance Premiums Only: Employers can limit reimbursements to only go towards eligible premium expenses. Typically, this refers to individual health insurance premiums but could also include eligible dental premiums, vision premiums, etc. as long as the employee has Minimum Essential Coverage (MEC) for QSEHRA or a qualified health plan for ICHRA.
- Insurance Premiums and Medical Expenses: Most employers choose to allow medical expenses to be reimbursed too. Note: Employers can choose to exclude categories of expenses (i.e., “prescriptions”) as long as the exclusion is applied fairly to everyone.
→ Read more about how health care reimbursement works here!
Still have questions about premium reimbursement?
If you are searching for a hassle-free way to offer affordable benefits, an HRA is certainly worth considering. 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.
In the meantime, check out our brand new HRA Guide for all the answers and inspiration!
