These Little-Known Health Insurance Options Can Save Small Employers Big Money

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The quality and variety of a company’s health insurance benefits remain a top priority for employees when considering employment in 2021, according to numerous studies, including recent ones from Hartford and MetLife. The problem for small employers is to be able to provide these benefits affordably and competitively, especially in a tight labor market.

Two little-known plans might help. One is called the Small Qualified Employer Health Reimbursement Arrangement Plan, or QSEHRA. The other is the Individual Health Care Reimbursement Arrangement, or IHRA. None of these plans get the attention they deserve.

“QSEHRAs and IHRAs have gained little popularity since their inception,” said Rob DeNinno, director of Precision Benefits Group in Philadelphia. “But according to the employer, both can save a small business and its employees a significant amount of money” and provide a competitive healthcare benefit.

There are many types of HRAs, but these two are particularly relevant for small businesses.

From 2020, an employer with an IHRA can remit money tax free (contributions are not subject to payroll tax and often may not be subject to payroll tax. income) on the accounts of full-time employees and some part-time employees. These workers can then use the money to help pay for eligible health care expenses, including premiums. Businesses of any size are eligible. To offer an IHRA, you would normally have a group health insurance plan in place and there is no contribution limit.

But what if you can’t afford a group health insurance plan? This is where a QSEHRA would be an option.

To be eligible for a QSEHRA – which has been in existence since 2016 – you must have fewer than 50 employees.

Like an IHRA, a QSEHRA allows the employer to reimburse the employee’s eligible medical expenses, including premiums. But unlike the IHRA, there is a limit to these contributions. For 2021, employer contributions are capped at $ 5,300 for individuals and $ 10,700 for households. Like the IHRA, the money must be used by the employee. Otherwise, he eventually returned to the company, although renewals to the following year are permitted.

DeNinno said that while “it depends on the client and the situation, we are finding that these types of plans can be a very cost-conscious remedy” for small businesses. “They are essentially a ‘cash flow’ for out-of-pocket expenses and may offer a lower cost option to save medical premium money,” he said.

There are the tax savings as mentioned above. But in addition, when properly implemented, these plans can save an employer from having to go through the annual angst of comparing and selecting group health insurance plans as well as the headaches. related to re-enrollment and the increase in premiums. An employer has better control over costs. This gives an employee more choice as they can use the money to purchase their own health care plans that they find more appropriate.

More importantly, it can be a way for small businesses to attract workers by offering them a health insurance benefit that they might not otherwise have been able to provide.

However, HRA plans like these have drawbacks.

“HRAs can add a layer of complexity to small businesses that already have little time to spend on things outside of their core business,” said Noah Glassman, president of Philadelphia Life and Health Inc. Glassman says that in his experience, the real benefit for employees is often not realized due to not knowing how to use it.

Glassman and DeNinno both claim that an employer can realize more benefits by instead offering a high-deductible group insurance plan combined with a health savings account that still allows tax-free reimbursement of employees. eligible medical expenses, but not premiums.

But unlike QSEHRAs and IHRAs, any money contributed to a health savings account plan must not be used by the employee by the end of the year, and whatever is left stays with the employee. employee instead of returning to the company.

There are many options for providing competitive health care benefits without breaking the bank. As a small business owner, you can offer a standard group insurance plan or a plan with a higher deductible combined with a health savings account. Or you can offer a high deductible plan with an IHRA that reimburses employees a portion of their premiums with tax benefits.

Or if you can’t afford to provide health insurance and have fewer than 50 employees, you can choose not to offer a health insurance plan and reimburse employees instead – again with benefits. tax – through a QSEHRA so they can buy their own health insurance elsewhere.

“Most small business owners have a hard time understanding how these options work,” DeNinno said. “Unfortunately, without a proper explanation from the consultants, they tend to go for the more expensive plans because they know them well. It’s unfortunate because with the right fit, small business owners and their employees can save a significant amount of premiums.

Gene Marks is a Chartered Accountant and owner of Marks Group, a technology and financial management consulting firm in Bala Cynwyd.

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