There's a growing trend among small business owners to forego the traditional, one-size-fits-all employer-sponsored group plans and opt for a reimbursement model, sometimes called a defined contribution model or 401(K) style benefits. If this sounds appealing, you might be wondering, “How do I set up a small business health reimbursement arrangement?” Let’s walk you through what you need to know.
First, a refresher: what is a small business health reimbursement arrangement?
A small business health reimbursement arrangement, or a qualified small employer HRA (QSEHRA), is a type of HRA designed specifically for small businesses (i.e., companies less than 50 employees). The small business HRA allows small business 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. Employees submit health expenses for reimbursement; they don’t have a fixed amount in an account.
How do I set up a small business health reimbursement arrangement?
- Pick a start date. If your company currently does not offer a group plan, you can start your plan ASAP. However, if you already have a plan in place you will need to cancel it before you begin your HRA. We’ve covered the steps you need to take to switch from a group plan to an HRA.
- Set a cancellation date for your group policy (if applicable). This step is only for business owners currently offering group health insurance. You will need to cancel the group plan coverage before the start date of the new HRA. In order to avoid any gaps in coverage, ensure the group plan ends one day before the HRA begins.
- Confirm who will be eligible. You are required to offer the HRA to all full-time employees. You have the option to offer the HRA to part-time employees as well, but it is not required.
- Determine a budget and set allowances. Your next step is to determine how much you’ll give employees to reimburse them for premium costs and medical expenses. You can set a monthly allowance (such as $200/month) for all employees or vary rates by family size. There is no minimum contribution amount to participate in a small business HRA, but there is a QSEHRA reimbursement maximum. For 2021, those are $5,300 ($441.67/month) for an individual, and $10,700 ($891.67/month) for a family.
- Establish legal plan documents. The IRS and Department of Labor have a variety of rules to follow regarding HRAs. Failure to comply with the rules will result in penalties. Your QSEHRA plan documents must include the HRA policies including monthly reimbursement amounts and reimbursement eligibility.
- Communicate your new benefit to employees. Since you are going through the work to set up the HRA employee benefit you want to make sure your employees know how to use it. Practical information to include: start date, annual HRA allowance, and how to obtain coverage. Our QSEHRA plan administrators at Take Command Health can help onboard your team for you.
- Provide resources for employees to purchase individual health insurance. Choosing a QSEHRA health insurance plan is a daunting task. As an employer, you can provide your employees with tools and information to guide their decision maker. Heads up-- federal rules prohibit employers from being involved in the actual decision making when it comes to choosing a provider or policy. Take Command Health can provide the best on- and off-market options or even faith-based plans for your employees based on their needs, their budget, their preferred doctors and their prescriptions.
Ready to set up a small business health reimbursement arrangement?
Using a third-party HRA administrator (like Take Command Health) will save you time, headaches, and even penalties if you have trouble correctly navigating the compliance requirements and complex rules. A QSEHRA administration tool will do the heavy lifting for you.
We are the only HRA administrator that also provides support for individuals shopping for health insurance. We can help your employees shop for off- and on-market plans, compare plans side by side, and see what works best for them, their preferred doctors, and their prescriptions.
We make it easy for you, and we will take care of onboarding your employees so they can get the most out of their QSEHRA.