As healthcare costs rise, small businesses are searching for flexible, affordable ways to offer health benefits. One increasingly popular option is the Health Reimbursement Arrangement, or HRA.
But what exactly is an HRA, and how does it work?
Let’s break it down.
HRA: A Quick Definition
A Health Reimbursement Arrangement (HRA) is an employer-funded benefit that reimburses employees for eligible health insurance premiums and/or medical expenses. Unlike traditional group plans, the employer doesn’t buy insurance. Instead, they reimburse employees for their own health costs.
It’s a great way to offer tax-free health benefits without the complexity or cost of group insurance.
How HRAs Work
- You set a monthly allowance. You decide how much money (e.g., $300/month per employee) you want to make available.
- Employees purchase their own coverage. Employees use that money to buy health insurance and/or pay for qualified medical expenses.
- You reimburse them tax-free. After employees submit proof of payment, you reimburse them up to their monthly allowance without tax implications for you or them (assuming the HRA is set up properly).
Types of HRAs for Small Businesses
The two most common HRA types that work well for small employers are the 1) Qualified Small Employer HRA (QSEHRAs) and 2) Individual Coverage HRA (ICHRA).
1. Qualified Small Employer HRA (QSEHRA)
- For businesses with fewer than 50 full-time employees
- Tax-free reimbursements for individual premiums and medical expenses
- Must be offered uniformly to all eligible employees
- Annual limits apply (set by the IRS)
2. Individual Coverage HRA (ICHRA)
- Available to businesses of any size
- Reimburses individual health insurance premiums and medical expenses
- Can be tailored to different classes of employees (e.g., full-time vs. part-time)
- No annual reimbursement limits
Why Small Businesses Like HRAs
- Cost control: You set the budget and stick to it
- Flexibility: Employees choose the plan that fits them best
- Tax efficiency: Reimbursements are usually tax-free for both you and your employees
- Simplicity: No need to manage a group health plan
Standalone HRAs vs. Traditional Group Health Insurance
Here’s a quick table summarizing the key differences between standalone HRAs and traditional group plan employee benefit approaches.
LegUp Health Can Help
At LegUp Health, we are well-versed in helping small businesses evaluate, set up, and manage HRAs. Whether you’re evaluating QSEHRAs, ICHRAs, or comparing them to group health options, we’ll walk you through what’s best for your team and your bottom line.
👉 Want to see if an HRA makes sense for your business? Book a free consultation with our team today.
