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Small-group insurance has been the primary option for many small business owners who are looking to offer health
benefits for their employees. There are more options now.
While traditional major medical plans are the most widely known and understood, they are not the only option. You have other options. What works best for you depends on how your company is set up, how individual and group plan costs vary in your geographic area, and the health of the individual market near you.
Here are some options for health insurance for small business:
1. Small group insurance
2. Self funded plans
3. Health Reimbursement Arrangements (HRAs)
OPTION ONE: SMALL GROUP INSURANCE
WHAT IS SMALL GROUP INSURANCE?
Historically speaking, small-group insurance—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.
OPTION TWO: SELF FUNDED PLANS
WHAT IS A SELF-FUNDED PLAN?
With the cost of healthcare continuing to rise, some employers are looking to self-funding as a means to save on costs. Technically speaking, self-insured employers pay for claims out of pocket when they arise as opposed to paying a predetermined premium to a carrier for a small
group plan. This type of plan, also known as a self-insured plan, is usually seen with a large enterprise as a means to control their healthcare spend and manage their own risk pool.
HOW A SELF-FUNDED PLAN WORKS:
When an employer opts for self-funding for health benefits for their employees, they usually set up a special trust fund that earmark money to later pay incurred claims. If the employee chooses not to keep claim processing in house, a third-party administrator (TPA) is engaged to process claims and may also offer additional services like premium collection, generating claim
utilization reviews, contracting for PPO services, and offering overall service for the chosen employee benefit plan. In this model, the employer assumes the risk.
OPTION THREE: REIMBURSE FOR HEALTH INSURANCE WITH AN HRA
WHAT IS AN HRA?
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.
Unlike Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) that are accounts, HRA stands for Health Reimbursement Arrangement, meaning that the model operates on reimbursements. Employees will pay the insurance company or doctor’s office directly and then submit a claim to get reimbursed for their expenses tax-free.
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 an HRA, 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.
HOW AN HRA WORKS:
The reimbursement model is simple: An employer decides how much money to contribute each month, provides their employees with standard information about how the HRA works, and outsources some administrative functions like verifying coverage. The employee chooses a plan that works for them, submits receipts for premium payments and medical expenses (if applicable), and gets reimbursed.
HRA'S THAT WORK BEST FOR HEALTH INSURANCE FOR SMALL BUSINESS
There are a few different kinds of HRAs that are worth noting.
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 (up to
$441.67 per month for individuals and $891.67 for families in 2021) 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. Reimbursement amounts can vary based on age and family size.
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.
HOW TO SET UP AN HRA
It’s not advisable to administer your own HRA because of HIPAA, so you’ll want to go through a third-party administrator (like Take Command Health!). You can sign up any time, and a new HRA offering qualifies employees for a special enrollment period so they can sign up for their
individual plan without waiting for open enrollment.
Benefits of reimbursing for health insurance:
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Optimized Benefits
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Tax Efficiency
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Flexible Design
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Budget Control
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Allows employers to get out of the health insurance risk management game.
WHAT'S BEST FOR MY COMPANY?
While we always advise our clients to speak with their CPA before jumping in, we are ready to chat on our website if you have any specific questions about your business and how HRAs stack up against group plans in your area. Setting up a small business HRA or setting up an ICHRA is simple and quick, and our team is here to help if you need it.
And remember, what's best for one company isn't necessarily best for another. It is important to consider your companY's unique makeup, your company size, whether or not you want to participate in the health plan as an owner, and your location market conditions to determine what the best plan will be for your company benefits.