If you run a small business with employees, you need to come up with a way to give those employees health coverage.
This can be very challenging for the smallest businesses. With only one or two employees, you cannot get the best rate, and you may have to go with substandard coverage or navigate the frustration world of group health insurance. Professional associations can sometimes help, but if you want the best for your employees, you might have to consider some non-standard options.
One such is a HRA – a Health Reimbursement Agreement. This is an account you fund from which your employees can get money to pay for expenses not covered by a health insurance plan. Like a HSA, it is used in conjunction with a high deductible health plan, a cheaper option for you than standard insurance. It differs from a HSA in that it is provided entirely by you and owned by you – which means that it you can cancel it. However, your employees do not need to make any contributions and there are no limits to how much you can put in. Some employees may push for a HSA, which they can keep when they leave, but the HRA does have one large advantage. It does not have the same eligibility limits – which means that your employees who are covered by Medicare or their spouse’s health plan can still access the fund for expenses that are not covered.
If you have less than fifty employees, you can (and should) get a QSEHRA – a Qualified Small Employer Health Reimbursement Arrangement. This avoids certain penalties associated with the Affordable Care Act (note, as of September 28, 2017) and allows you to offer a HRA without also offering a high deductible health insurance plan. In other words, this is for small businesses that literally cannot afford to offer a health plan to their employees. It lets you reimburse up to $4,950 per year for individuals and $10,000 for families, which can be spent on medical expenses or health insurance premiums. Mid-year hires get a pro-rated amount. You have to cover all full-time employees, but not part-time or seasonal hires (such as summer guides).
You can cover yourself with your HRA only if the business is a C corp or S corp and you pay yourself a salary. In other words, if you live off the profits of your business and file a Schedule C, you cannot give yourself a HRA. You can, though, give one to your spouse if they do enough work for you to be considered an employee.
When it comes to taxes, any withdrawals an employee makes from a HRA are tax-free. You can also deduct the money you put into the plan – it’s considered a business expense. If you set it up correctly with proper advise from an accountant, you can reduce your overall tax liability as well as making your business more attractive to potential hires.
HRAs are strongly recommended to small companies that could not otherwise afford to provide any kind of health benefits to their employees. They are a good way to help your employees manage unforeseen medical expenses and can help attract and retain talent. They are also flexible – as your company grows, you can add a health plan or change to a HSA without being tied down to any kind of obligation.
If you need advice on how to set up a HRA for your company, as well as how to get affordable health insurance for yourself, your family, and your employees contact DesignHealth today.