When it comes to choices for health insurance small business, you probably have more options than you realize. Most people think of small-group insurance because it’s the model of insurance with which most people have experience. For many years, group coverage health insurance was the only way to go. Fortunately, that is no longer the case! Let’s take a look at how health reimbursement arrangements could be just what you’re looking for.
Health insurance small business: why is it important?
If you are planning on growing, having a competitive benefits package is key to recruiting and maintaining the top talent in a tight job market. Your company is only as good as the team you build, and it's just common sense to ensure that those valuable team-members remain loyal. Compensation is a big driving factor for effective retention strategies, but other things like benefits and culture are also extremely important to today's workforce.
Benefits aren't just important to ensure that your team is happy and covered, if you fail to offer competitive benefits, it can bring some serious financial consequences, not to mention the risk of losing employees you depend on (and information and ideas) to competitors.
→ Check out our 5 tips for choosing a small employer health insurance plan
The group coverage option
Historically speaking, small-group health insurance plans—or fully-funded insurance—has been the primary option for many small employers who are looking to offer health benefits for their employees. It is geared toward businesses with less than 50 full time employees everywhere except four states where it applies to businesses with up to 10 employees.
Group Insurance health plans provide coverage to a group of members, usually comprised of company employees or members of an organization. Group health members usually receive insurance at a reduced cost because the insurer’s risk is spread across a group of policyholders.
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.
→ For decision making support, check out our post on what the best insurance is for your business.
HRAs: a better option
A health reimbursement arrangement is an affordable, tax-advantaged alternative to traditional insurance where employers reimburse their employees for individual insurance premiums and medical expenses (if applicable) on a pre-tax basis.
The use of new reimbursement models of HRAs put the employer's reimbursements on nearly the same tax playing field as traditional small group plans, but without all the hassles and requirements. Before, a big advantage for group plans was that they were deductible expenses for employers and were taken out of employee paychecks on a pre-tax basis. With HRA coverage, employers can make reimbursements without having to pay payroll taxes and employees don’t have to recognize income tax. In addition, reimbursements made by the company count as a tax deduction.
QSEHRA: To cut quickly through the insurance jargon (it stands for “Qualified Small Employer Health Reimbursement Arrangement” by the way), a QSEHRA allows small employers (businesses with less than 50 FTEs) 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.
ICHRA: The individual coverage HRA has all the same benefits as QSEHRA, but with no maximum contribution limits and no company size limit. In addition to the flexibility of varying rates based on age and family size like QSEHRA, the hallmark feature of ICHRA is that benefits can be scaled across different classes of employees. That means an employer can offer one reimbursement amount to seasonal workers, another amount to part-time, and varying amounts based on geographic area, allowing further streamlining of total benefit spend. An ICHRA can also be integrated with a group plan, which is another distinction.
We can help with health insurance small business!
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.
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.
A wife to one and mother to four, Keely does all of the things. She’s also dabbled in personal finance blogging and social media management, contributed to MetroFamily magazine, and is passionate about good food, treasure hunting and upcycling. With a B.S. in Psychology from the University of Oklahoma and a knack for a witty punchline, it’s no surprise that Keely’s social posts are as clever as they get. In her (very little) free time, you’ll find Keely with her nose in a book or trying out a local restaurant with her family.