Wondering how to reimburse for health insurance? An HRA allows business owners to reimburse their employees on a tax-free basis for health insurance premiums or qualified medical expenses. This is a huge win for business owners who are looking for a more affordable, efficient way to offer small business health insurance to their teams without having to hassle with a pricey, one-size-fits-all group plan. Let’s walk through what you need to know about health reimbursement arrangements.
The best, most tax-advantaged way to reimburse for health insurance is through an HRA.
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
Using HRAs to reimburse for health insurance
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. This means employers get to offer benefits in a tax-efficient manner without the hassle or headache of administering a traditional group plan and employees can choose the plan they want.
- A key thing to remember 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 can 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.
How to reimburse for health insurance
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.
Pro-tip: You can also scale reimbursements based on family size and age.
Ready to reimburse for health insurance?
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.
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.