Are you wondering how reimbursed health insurance premiums help employers and employees? We’ve got the information you need. Reimbursements are possible through HRAs, or health reimbursement arrangements. A health reimbursement arrangement is an alternative benefits solution that allows an employer to reimburse for medical expenses and premiums on a tax-advantaged basis on their own terms. Let’s take a look at these magical tools and check out the benefits that await!
What is an HRA?
Let's start with what an HRA is not. An HRA is not a bank account. This can be a little confusing at first, but it’s actually much simpler. Unlike Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) that are accounts, an HRA is simply an Arrangement. We often get asked if business owners have to pre-fund their account or send money to our account so we can distribute it to their employees. The answer is no to both questions—the money stays with the employer until an employee makes a claim that qualifies for reimbursement. If employees never make claims or don’t claim the full amount, the employer keeps it all!
The reimbursement model (sometimes called a “defined contribution”) gives employers greater ability to control costs and provides employees with more options to choose from. This is very different from the current model of group insurance (sometimes called a “defined benefit”) where employers must choose a plan for the group and employees are limited to options sponsored by the employer.
There are a couple of tools that helps employers reimburse employees' health insurance premiums that we'll mention: The Individual Coverage HRA (for companies of all sizes) and the Qualified Small Employer HRA (for companies with less than 50 full time employees).
Benefits of health reimbursement arrangements
HRAs take the burden of managing a health plan and underlying health risks off of the employer. Business owners won’t have to hassle with renewals, worry about participation rates, stress about what doctor networks your employees want, or be surprised by annual premium increases. Instead, employers can decide which employees qualify, set their monthly allowances, and get back to managing their business while employees get to choose the plans they want.
Let’s look in more detail at how reimbursed health insurance premiums help employers and employees.
How reimbursed health insurance premiums help employers
- Eliminates risk: HRAs allow employers to get out of the insurance “risk” game. For any employer with 50+ employees, whether they are currently self-insured or fully-insured, they are effectively responsible for their employees’ healthcare spend. Some employers are figuring out how to manage costs effectively: they are invested in wellness programs, engaged in high-performance network design, and interested in helping employees with chronic conditions effectively manage costs. Other employers would rather not try to manage employee healthcare spend. If that’s you, an ICHRA is the way to go. You can still offer generous benefits (or not generous, up to you) and your costs are fixed because you have no risk to manage.
- No contribution limits: The good news for the newest HRA is that instead of limiting participation to companies with less than 50 employees with a set contribution limit ($,5300 for individuals / $10,700 for families), like a QSEHRA, or keeping up with participation requirements like a group plan, it can be any size company with no minimum or max contributions at whatever monthly cost you want.
- No size restrictions: Businesses of any size can participate. ICHRA is an HRA solution for small business AND mid-size to large companies, and small businesses can also consider the Qualified Small Employer HRA, designed specifically for them.
- Custom design for efficiency: Employers can vary monthly reimbursement amounts to different classes of employees. ICHRA’s 11 employee classes separate employees into groups by job-based criteria such as hours worked, geographic location, salary v. hourly, age and filing class. This is particularly helpful for companies wanting to offer a reimbursement to all employees but want to make a distinction between salaried management and hourly and/or part-time.
These are just some of the reasons our CEO told Bloomberg that ICHRA is part of an employer-based benefits revolution and we couldn't agree more!
How reimbursed health insurance premiums help employees
- More personalized plan choices: 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.
- Portability: Job changes aren’t uncommon in today’s market. But your health insurance shouldn’t have to change just because you change jobs. If you are offered an ICHRA at a company and then end up leaving—say, to go out on your own, your health plan will stay with you. No need to stress over pricey COBRA plans or switching plans that might not have your doctor in network; your individual plan will stay with you.
- Job Retention: Employees are attracted to benefits, particularly health benefits. 69% say they would accept one job over another if it offered better benefits. Businesses not offering benefits are 4x more likely to have voluntary employee turnover than their counterparts offering health benefits. In addition to losing out on talented employees, it generally costs 6-9 months of salary in recruiting and training expenses to train a new employee. To replace an employee making $40,000 a year would cost $20,000-$30,000. Five employees leaving in one year for the same position with benefits will cost your business $100,000- $150,000!
- Personalization: Employees can shop the plan on the individual market that best meets their needs. If one employee prefers their Aetna plan, no problem. If another would like a BlueCross plan because the network includes his preferred doctors, that’s great too!
- Easy reimbursements: When you upload proof of coverage, a recurring expense will be set up in your account so you can be reimbursed each month for your premium. Take Command will present your employer with a report each month and your employer will reimburse you on your paycheck. Note: reimbursements come from your employer, not Take Command. Your employer reimburses for either health insurance premiums or premiums and qualified medical expenses.
Have we convinced you that HRAs might be the way to go? Here’s how to switch from a group plan to an HRA. If you want to keep doing your research, our blog has a slew of great information for you, and there's always our comprehensive ICHRA guide. Our team of HRA experts are standing by to answer any questions you might have!