Small business owners can now take advantage of Health
Reimbursement Arrangements, or HRAs, as a way to cut their
health insurance expenses in half. As health insurance
premiums continue to grow, fewer small businesses are
offering group coverage to their employees. For small
businesses with healthy employees, establishing HRAs can be
a great way to help their employees obtain permanent,
portable individual health insurance at a much lower cost
than conventional group coverage.
What is a Health Reimbursement Arrangement?
A Health Reimbursement Arrangement, or HRA, is simply an
agreement by an employer to reimburse the employee for
their health insurance premiums and other specified medical
expenses. This is considered to be a tax-free fringe
benefit for the employee.
Because family and individual health insurance plans are
underwritten (meaning that the insurance company has the
option of excluding a condition or declining an application
all together), they are much less expensive than are group
plans. In fact, they typically cost less than half as much.
HRAs are also known as Section 105 plans, named after the
section in the U.S. Tax Code that governs them.
How Health Reimbursement Arrangements Work
In today's business climate employees are quick to go
elsewhere if they see a better opportunity. Providing good
benefits is essential to retaining the best employees, but
group health insurance can be too expensive for some small
business owners.
An HRA allows you to reimburse your employees for their
individual health insurance expenses, taking you out of the
middle. Employees carry their own private coverage which
is totally portable and not tied down to their employment.
You no longer have to administer the plan, and you no
longer have to shop it every year. When employees carry
their own private coverage, there are also no COBRA issues
to deal with when employment terminates.
When you establish an HRA for your employees, you define
what expenses that you will be reimbursing, and how much
you will reimburse. For example, you may say that you will
reimburse up to $300/month for covered health insurance and
medical expenses. If the employee uses less than that, any
excess credit accumulates for future disbursement.
When the employee has a qualified medical expense, they
would submit it to you for reimbursement, up to the amount
of their HRA balance. You then simply cut a check for the
amount of the reimbursement. It's that simple. You count
it as a business expense, and your employee pays no taxes
on that reimbursement.
Keeping Your Employees Healthy
Most of your employees will incur medical expenses every
year, including dental expenses and eye glass expenses.
Through an HRA you can reimburse your employees for these
expenses with tax-free dollars.
The best businesses are about more than just selling
widgets and making money. The more the business cares
about the employees and the more the employees care about
the business - the more fun we have and the more successful
we are. So why not reimburse for preventive benefits like
smoking cessation programs, weight loss programs, or even
just annual physicals.
The great thing about HRAs is that you are the architect.
You get to decide what expenses you will reimburse. You
also have the right to exclude part time employees,
employees who have worked for you for less than three
years, and those under age 25.
How to Establish Your HRAs
When you establish an HRA, all you have to do is furnish a
Summary Plan Description to all plan participants. The
Summary Plan Description simply describes who is eligible,
and the benefit limits that can be reimbursed. For
instance, it may list the minimum number of hours they must
work, their minimum age, and the number of months they must
be employed. It will list the benefit limit for
reimbursement of health insurance premiums, out-of-pocket
expenses, term life premiums, and possibly other expenses.
You must also keep a Plan Document in your files, which
documents the same information.
A Better System for Employer and Employee
If you have a small business of healthy employees, an HRA
may be a no-brainer. Keep in mind that because your
employees will be applying for individual health insurance
coverage instead of group coverage, their premiums will be
much lower but the plans will each be individually
underwritten.
Your employees will each get to choose the insurance plan
and deductible that best fits their individual needs. Many
are choosing Health Savings Accounts as a way to further
reduce their health insurance costs. Once everyone is
approved they will have permanent coverage that is not tied
down to their employment. And you can get out of the
insurance business, for good.
----------------------------------------------------
By Wiley Long - President, HSA for America (
http://www.health--savings--accounts.com ) - The nation's
leading independent health insurance firm specializing in
individual and family coverage that work with Health
Savings Accounts.
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