Owners and HR managers in small businesses are realizing in greater numbers that cost-effective solutions for health insurance are increasingly becoming a must. Over 90 percent of the small businesses surveyed by the National Small Business Association say they believe that offering health insurance gives them a competitive advantage in attracting and retaining top talent. But with shrinking profits, an unstable economy, and rising costs of traditional health care plans, it’s becoming more difficult for small business owners to achieve this objective. Concerned employers are searching for innovative ways to keep their employees happy while allowing them to control and manage their health care costs. They’ve found an effective solution in Health Reimbursement Arrangements (HRAs).
What is a Health Reimbursement Arrangement?
A Health Reimbursement Arrangement, sometimes referred to as a medical reimbursement account or Health Reimbursement Account, is an employer-funded consumer-driven health plan (CDHP) that enables both small business employers and their employees to save on the cost of medical care. What’s more, because dollars set aside for employees to pay for their health care expenses are pre-tax dollars, HRA plans offer tax advantages to a small business.
Why is it called a “consumer-driven health plan” (CDHP)?
A CDHP allows covered members to use an HRA to pay health care expenses directly, and control how their health care dollars are spent. Consumer-directed health plans, like the Health Reimbursement Arrangement, encourage participants to actively manage their health costs, choose their health care providers, and improve their health. The “consumer” controls how his health care monies are spent. For example, he may decide to choose a generic medication over a name-brand drug or go to an urgent care center instead of a hospital emergency room for a non-life-threatening health issue. An HRA is also ideal for covering items that are not typically covered by insurance, such as teeth whitening, hair removal, cosmetic surgery, nutritional supplements, health club dues, weight loss programs, and a host of other medical and dental expenses excluded from insurance according to the IRS.
How is a HRA different from a traditional health plan from a small business standpoint?
Insurance premiums are extremely high for a traditional low-deductible health care plan, so offering an HRA instead of a traditional health plan provides significant cost savings for the small business owner. Once a small business transitions from a traditional health insurance plan to an HRA or HRA in combination with a high deductible plan, the savings can be used to fund HRA accounts.
What are the advantages of a HRA?
A Health Reimbursement Account combines the cost-saving health insurance benefits small business employers need with the protection and flexibility that employees want. HRAs are a popular strategy small businesses use to provide their employees with health care benefit options, without increasing their out-of-pocket exposure or their expenses. Funds placed in the HRA are pre-tax dollars and qualified claims reimbursements are tax-deductible for the employer. Employers also know their maximum health care benefit expense, which helps with budgeting and forecasting. Because accumulated funds in an HRA are controlled by the employer and typically retained upon employee termination, accumulated HRA funds may also be an employee retention incentive.
On the employee side, employer HRA contributions are excluded from employees’ gross income and employer-paid, qualified medical expense reimbursements are tax free up to a certain maximum coverage amount. Additionally, employees become smarter shoppers and spenders when it comes to health care services. A Health Reimbursement Account can make it easier for the employee to pay for individual and family health insurance, be more proactive with preventative health care, and cover medical or dental expenses not covered by insurance.
What’s the bottom line?
Small business health care insurance costs may be escalating, but you can still lower costs while offering your employees health care coverage through a Health Reimbursement Arrangement.
Read on to get more information about Intuit’s HRA offerings (the Intuit Health Debit Card), and check out this video, wherein one HRA user talks about how it’s working for him.