Understanding Health Reimbursement Arrangements (HRAs) for Small Businesses
The Affordable Care Act (ACA) has made it possible for small businesses with fewer than 50 employees to offer health benefits to their employees through Health Reimbursement Arrangements (HRAs). An HRA is a tax-free account that employers can use to reimburse employees for qualified medical expenses, including health insurance premiums, deductibles, and copays.
Types of HRAs
There are two main types of HRAs:
Integrated HRAs (ICHRAs): These HRAs are available to employers of any size and can be used to reimburse employees for premiums for individual health insurance policies purchased through the Marketplace.
Qualified Small Employer HRAs (QSEHRAs): These HRAs are available to employers with fewer than 50 employees and can be used to reimburse employees for premiums for employer-sponsored group health insurance plans or individual health insurance policies purchased through the Marketplace.
Qualifying for an HRA
To qualify for an HRA, employers must:
Have fewer than 50 employees
Not offer a group health insurance plan
Not be part of a multiple employer plan
Benefits of HRAs
HRAs offer several benefits for small businesses and their employees, including:
Tax savings: Contributions to HRAs are tax-free for both employers and employees.
Flexibility: Employers can tailor HRAs to meet the specific needs of their employees.
Cost-effectiveness: HRAs can help small businesses provide affordable health benefits to their employees.
Example
Let’s say that a small business with 20 employees does not offer a group health insurance plan. The employer could establish an ICHRA and contribute $500 per month to each employee’s account. Employees could use this money to purchase individual health insurance policies through the Marketplace or to reimburse themselves for qualified medical expenses.
Seeking Professional Guidance
It is important for small businesses to consult with a qualified health insurance professional to determine if an HRA is right for them. A professional can help employers understand the different types of HRAs, the eligibility requirements, and the potential benefits and drawbacks of each option.
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