HRA design should be lean, flexible, and smart − just like your small business. Most importantly, a small business HRA should be customized to fit your team's needs and your budget. The good news? There's an easy way to do that with Take Command.
Given the sky high prices of traditional group plans, offering competitive benefits packages might seem out of reach for many small businesses. But without offering health insurance like big corporations, how can small businesses attract talent?
Well, we've got the answer: QSEHRA. It’s a tax-advantaged way to offer financial reimbursements for health insurance to employees of small businesses! Employees can choose an individual health plan that works best for them and then use the QSEHRA funds to pay for insurance premiums or qualified medical expenses or both. It’s a great way to offer competitive benefits as you grow while taking care of existing employees.
And the best part?
It's affordable and scaled to your budget!
How to customize HRA design
As the small business owner, you get to design the way your QSEHRA is set up.
Part of why a QSEHRA is so flexible and efficient is that you can control who is able to participate, what you want to reimburse, and how much each participant receives for reimbursements each month.
HRA plan design 101
There's one key rule to follow here. The IRS rules state that you must treat all full time employees fairly. But that doesn't mean you have to offer them all the exact same reimbursement amount.
Being smart and savvy during setup is the key to unlocking greater savings and efficiencies over other health insurance options.
And remember, it's easy to make changes to your design once you get going − just another way that QSEHRA flexes with your small business.
HRA eligibility rules
As we mentioned before, you have to treat all employees fairly, but there are a few loopholes here making it possible for employers to contribute different amounts to different types of employees. While all full-time employees must be included, you can choose whether or not to include the following:
- Part-Time Employees
- Seasonal Employees
- Employees Under 26
- Employees on their spouse’s plan
HRA contribution rules
Once you have decided on an amount that your company can afford to reimburse each month, there are a few design options that will help your QSEHRA operate more efficiently.
- Universal treatment. Everyone gets the same amount, say $200 per month, regardless of age, family size or status.
- Max it out. Give everyone on the team the maximum amount they are eligible for under the “single” or “family” categories. The rates for 2021 are $441.67/mo and all employees with dependents would get $891.67/mo. Rates increase with inflation each year.
- Family size. This one makes a lot of sense. A young, healthy single employee probably doesn't need a pricey insurance plan like a family of four. There's a pretty big price jump on the individual market when you go from individual plans to family plans. The IRS requires that employers choose a reference plan or offer a fair percentage of the maximum. As an example, a single employee could receive $200 a month, married couples could receive $300, and employees with kids could receive $400.
- Age-based. If tied to a reference plan on the individual market, you can vary rates by age. This also makes sense given that younger employees are typically healthier and thus require cheaper insurance plans than their more mature, seasoned counterparts. The easiest way to approach this is to remember that most marketplace plans offer premiums in a 1:3 ratio for individuals ages 26 to 64. As an example, you could set rates for a 26 year old at $100/mo and a 64 year old $300/mo using the 1:3 ratio. A 37 year old employee gets whatever amount on the linear line in between the 26 and 64 year old (and that's $158 if you remember your high school algebra).
What can be reimbursed with an HRA?
There's a lot of flexibility over what types of things you choose to reimburse, and these design strategies can help tailor your HRA plan to your company. For example, excluding medical expenses and premiums of spouse plans has the effect of only allowing reimbursements for employees purchasing their own insurance. This could be an effective strategy if you only need to help a few key employees or control your budget.
- Premiums Only: You can limit reimbursements to only go towards eligible premium expenses. This typically refers to individual health insurance premiums but can also include eligible dental premiums or vision premiums if the individual has Minimum Essential Coverage.
- Premiums and Medical Expenses: This is the most popular choice among our clients. Eligible expenses include doctor visits, copays, dental cleanings, prescriptions, eye glasses, diabetes supplies, etc. To control costs, you can choose to exclude categories of expenses like “prescriptions” as long as it's fair to everyone.
- Spouse’s plan premiums: A common thing we see among our clients is that many small business owners or entrepreneurs will receive health insurance through their spouse's group plan. This is awesome since it takes the insurance burden off of the small employer! However, employees may still have to pay something to participate in their spouse’s plan, usually in the form of a deduction on the spouse’s paycheck. Employers setting up a QSEHRA can choose whether or not to allow employees to make claims for these group plan premiums. Remember that most likely, these claims will be taxable because the spouse is probably making a pre-tax payroll deduction.
Need help with HRA plan design?
Need help designing an HRA for your small business, finding a reference plan, or choosing an appropriate reimbursement rate? Chat with us!
Our team can help you benchmark against similar employers in your industry as well as look at the individual market options in your area so you can save money but still offer a great, competitive benefit.
We can also help with on boarding employees, assisting them with reimbursements, help at tax time, and more!
If you want to dig deeper, check out our new QSEHRA Guide. It's chock full of helpful information from HRA requirements to HRA design features to HRA administration.
I wrote this blog because I care about ideas (big and little) that can help fix our healthcare system. I used to work on projects for Kaiser Permanente and the Parkland Health & Hospital System so I've seen the system inside and out. It's so important that consumers keep up with industry shifts and changing health insurance regulations. I'm also Take Command Health's Content Editor and a busy mom. Learn more about me and connect with me on our about us page. Thanks!