For many years, group coverage health insurance was the only way to go. Fortunately, that is no longer the case! If you are a business owner who is deciding between group coverage and an HRA for your employees, you probably have questions about the benefits of HRAs (health reimbursement arrangements). Settle in, because the benefits are numerous! Let’s get right to it.
What’s the difference between group coverage and an HRA?
Most people think of the model of small-group insurance (sometimes referred to as “fully funded”) because it’s the model of insurance with which most people have experience. While it is the standard-bearer of employer-sponsored benefits, small-group insurance remains difficult to understand both for employers and employees alike. Costs fluctuate from year to year and plans offer little flexibility. There are a few options for group coverage in addition to HRA options that we cover in our Small Business Health Insurance Guide, which you might find helpful.
Health Reimbursement Arrangements
In general, HRA is an umbrella term for any legal arrangement between an employer and their employees to reimburse for medical expenses and/or insurance premiums on a tax-free basis. These are sometimes referred to as “401(K)-style” insurance. 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 are the different types of HRAs?
QSEHRA: the qualified small employer HRA is designed for small businesses with 1-50 employees, who do not offer group coverage. This HRA includes a contribution limit on reimbursements ($5150 for individuals and $10,450 for families).
ICHRA: the individual coverage HRA is basically a “super-charged” version of the QSEHRA. It works for businesses of any size and does not include contribution limits.
Pros and Cons: deciding between group coverage and an HRA
Key advantages of small group insurance:
- well known
- solid product options
- proven to be an effective retention strategy
Key advantages of the ICHRA include:
- Customizable classes
- No reimbursement limits
- Works for businesses of any size
- Can reimburse both premiums and expenses
- Can be offered alongside a group plan
Key advantages of the QSEHRA include:
- Optimized benefits
- Tax efficiency
- Flexible design (vary by family size or age)
- Budget control (choose the budget that works best for you
- Works for small businesses with less than 50 employees
- Can reimburse for premiums and expenses
- Note the reimbursement limits
HRA key benefits (vs. traditional group health plans)
- Transfers employer responsibility for health risks.
- Transfers health decision making from employer to employee.
- 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.
- Greater budget control.
- No participation concerns.
HRA help is here!
We obviously think HRAs are great and should be considered as you decide on benefits for your company. But we will also be the first to say that they aren't for everyone. Certain cities are better primed for HRA adoption than others, based on factors like the health of the individual market. You can read all about our findings on this subject here.
We've also tracked the early companies to sign up for ICHRA, which shed some light on what types of companies are making the switch. We've put together our findings here. Check it out!
In the meantime, 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.