As a small business owner, you’re constantly juggling various roles – from managing day-to-day operations to strategizing for future growth. Among these responsibilities, understanding and implementing the right healthcare benefits for your employees can often seem overwhelming. Yet, in today’s competitive market, offering the right benefits is more than just a perk; it’s a necessity to attract and retain top talent. Enter the HRA, or Health Reimbursement Arrangement.
In this article, we’ll delve deep into the world of HRAs. By the end, you’ll have a clear understanding of what an HRA is, its primary uses, the tangible benefits it can offer your employees. You will also learn some strategic advantages it can bring to your business. If you’re considering ways to enhance your benefits package without breaking the bank, this guide will provide insights into why HRAs might be the perfect fit for your small business.
What is an HRA?
An HRA, or Health Reimbursement Arrangement, is an employer-funded account that reimburses employees for out-of-pocket medical expenses and, in some cases, insurance premiums. Unlike Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs), HRAs are entirely funded by the employer, and there’s no option for employee contributions.
What is an HRA used for?
The primary purpose of an HRA is to cover eligible medical expenses not covered by the company’s primary health plan. This can include deductibles, co-payments, prescriptions, and sometimes health insurance premiums. The flexibility of HRAs means they can be tailored to suit the specific needs of your business and your employees.
What are some types of HRAs?
There are a few different options when it comes to types of health reimbursement accounts. Some include:
- Traditional HRA (or Standard HRA): This is the original HRA. Employers can offer it alongside a group health insurance policy. Employers set aside a specific amount of money for employees to use for qualified health care expenses. Any unused amounts can be rolled over to the next year, at the discretion of the employer.
- Qualified Small Employer Health Reimbursement Arrangement (QSEHRA): Specifically designed for small employers who have fewer than 50 employees and don’t offer a group health insurance plan. It allows employers to reimburse employees for individual health insurance premiums and medical expenses. There are annual contribution limits set for QSEHRAs.
- Individual Coverage Health Reimbursement Arrangement (ICHRA): Introduced in 2020, ICHRAs allow employers of any size to reimburse employees for individual health insurance premiums. They can be offered to all employees or specific classes of employees, and there are no maximum contribution limits.
- Excepted Benefit Health Reimbursement Arrangement (EBHRA): Another arrangement introduced in 2020, EBHRAs are designed to reimburse for ancillary benefits like dental and vision coverage, or for other medical care (provided it doesn’t reimburse for individual health insurance premiums). There is a cap on annual contributions.
What are the benefits of an HRA?
There are benefits for both the employees and the employer with any type of health reimbursement account.
Benefits for Employees
- Cost Savings: Since HRAs cover medical expenses, employees can save significantly on out-of-pocket costs.
- Flexibility: HRAs can be used for a range of medical expenses, providing employees with flexibility in their healthcare spending.
- Tax Advantages: Reimbursements through an HRA are generally tax-free, reducing the financial burden on your team.
Benefits for Employers
- Cost Control: HRAs allow you to set a budget for healthcare benefits. You only pay for actual expenses incurred, rather than a flat premium, potentially leading to cost savings.
- Attract and Retain Talent: Offering an HRA can make your benefits package more competitive, helping you stand out in the job market.
- Flexibility in Plan Design: You can design your HRA to complement existing health insurance plans or to function as a stand-alone benefit. This flexibility can be especially valuable for small businesses navigating the ever-changing landscape of healthcare.
- Tax Advantages: Not only do employees benefit from the tax-free nature of HRA reimbursements, but employers can also typically deduct reimbursed amounts as a business expense.
For the small business owner, offering health benefits that are both cost-effective and attractive to employees can seem like a tightrope walk. HRAs provide a solution that balances the scales. By understanding what an HRA is and the associated benefits, you can make informed decisions that benefit both your business and your cherished team.
However, implementing and managing an HRA, like any employee benefit, can come with its own set of challenges. That’s where our team of payroll and HR experts at Paper Trails come in. With a deep understanding of the intricacies of HRAs and a passion for simplifying payroll and benefits, our team can guide you through the process. From help with setting up the HRA to ensuring compliance with regulations, we’ve got you covered. Don’t navigate the complex world of HRAs alone. Lean on the expertise of Paper Trails and provide the best for your team without the administrative headache.