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Does a Business Need to Sponsor Health Insurance to Benefit from an HRA?

When it comes to Health Reimbursement Arrangements, not all employers are required to sponsor a group health plan in order to provide their employees with a custom health benefits package and save the business valuable tax dollars.  

A Health Reimbursement Arrangement (HRA) is a tool for business owners to increase their tax savings and to offer tax-free health benefits.  An HRA may reimburse for qualified medical expenses such as co-pays, deductibles, and qualified health insurance premiums.

Do employers need to sponsor a group health plan in order to provide an HRA?  IT DEPENDS ON THE HRA.  One HRA requires the employer to sponsor a group health plan, while another HRA requires the employees to show proof of Minimum Essential Coverage (MEC) through either their spouse or the Marketplace in order to participate. 

If a business has one or more employees and sponsors a group underwritten health plan, the Integrated HRA can help reduce a business’ overall costs of insurance coverage by 10-50%.  This means savings for the employers and more options to pay for medical expenses not covered by health insurance for their employees.

The BASE® Integrated HRA is designed to reduce the overall group health insurance cost for the business and it’s employees.  Coupled with the group health plan, the HRA can help to suppress the yearly increases most commonly associated with health care.

If a business wants to reimburse either individual health premiums, non-insured medical expenses, or both, and have employees who meet MEC, not offered through the employer, the Section 105, Individual Coverage, QSE, or Excepted Benefit HRA, can help the business save money by not having to provide a traditional group health plan making all reimbursements a deductible business expense, and still help employees pay for their medical expenses tax-free.

The BASE® Section 105 HRA is designed to assist with health care expenses, and provide an average of $5,000 in tax savings per year.  Small business owners can deduct up to 100% of health care costs as a business deduction.  In order to participate, small business owners must be classified as either a Sole Proprietor, in a Partnership, a C Corporation, or S Corporation.

The BASE® Individual Coverage HRA is designed to streamline benefit options and cut costs without reducing value. New in 2020, this new plan will integrate with the employees’ individual health insurance to provide business owners with a great alternative when it comes to providing health benefits.

The BASE® QSE HRA is designed to help employers offer a more attractive benefits package.  Employers are able to provide a tax-preferred benefit that employees can use to pay for qualified health care expenses, such as their health insurance premiums purchased on or off the Marketplace.

The BASE® Excepted Benefit HRA is designed to provide employees with an additional $1,800 to pay for out-of-pocket medical expenses and non-insured medical expenses.  The business can provide a group health plan with this HRA, but the employee does not have to participate in the employer-sponsored health plan in order to participate.  This new plan for 2020 provides a way to maximize tax benefits for a business and their employees.

Health Reimbursement Arrangements have been proven to reduce the financial impact of health care expenses for both the employer and employees.  Please call 888-386-9680 or visit the website for more information.  

Be Successful with the BASE® QSE HRA

The success of small business owners is important to us, and it is imperative to understand the challenges that nearly a quarter of small businesses face.  It’s the trend we continue to see for business owners of all sizes – wanting to provide health care and health care benefits to employees while saving money and keeping the business profitable.   

The Qualified Small Employer Health Reimbursement Arrangement (QSE HRA) was established and signed into law in 2017 as a part of the 21st Century Cures Act.  This type of HRA makes it much easier for small business owners to offer an attractive benefits package to their employees.  It is a great alternative to traditional group health insurance because employers can set their own budget and provide a formal health benefit to all of their employees without having to provide health insurance.

How does it work?

  1. The small business sets a monthly allowance. This is the maximum amount of tax-free money the employee will receive for their health care.  For 2020, self-only coverage can receive up to $5,250 and family coverage can receive up to $10,600. 
  2. Notifications and Attestation. The employer provides a 90 day notification before the start of the plan and an attestation form to serve as proof of Minimum Essential Coverage (MEC). 
  3. Employees make their purchases. Employees can purchase individual health insurance or use the money for co-pays, deductibles, prescription drugs, dental, and vision, among other out-of-pocket medical expenses. 
  4. Employees submit proof of their expense. After incurring the expense, the employee will submit proof, as defined in Code Section 213(d), to the business through receipts or an explanation of benefits from their insurance company along with affirmation of MEC before each reimbursement is made. 
  5. Expenses are substantiated and employee is reimbursed. If it is a qualified expense, the expense is reimbursed.

To offer a QSE HRA, a business must have fewer than 50 full-time employees and not offer group insurance, including health, dental, or vision.  It must be offered to all W-2 employees and those employees must provide proof of Minimum Essential Coverage (MEC).

Stacey Davis, a BASE® Sales Representative, works with a lot of clients who have found the QSE HRA to be a good fit for their benefit strategy.  “A lot of business owners cannot afford to provide group health insurance, but they can provide a benefit that their employees can use to pay for their health insurance premiums and out-of-pocket medical expenses.  It is a great tool that can help to either keep current employees, help entice new employees, or just assist them with their medical expenses.  Instead of offering bonuses and pay raises, which are taxable to the employees, employers can offer their employees a benefit that is tax-free and 100% tax deductible to the business.”

Both the employer and employees will reap the benefits of the QSE HRA. Among other benefits, the employer can save the business money and have peace of mind knowing that all legal and administrative concerns are taken care of by BASE®.  The employees now have additional money to help with the rising cost of health care and can secure their own medical insurance that fits their needs on or off the Marketplace while getting the added benefits.

The QSE HRA has been successful for all types of small businesses in offering employee health benefits.  In years to come, businesses are expected to offer HRAs, like the QSE HRA, and increase the value they provide to employees.  For more information on the BASE® QSE HRA, call BASE® at 1-888-386-9680.