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Health Insurance Reimbursement Arrangements for Small Business Thumbnail

Health Insurance Reimbursement Arrangements for Small Business

By: Cynthia L. Keith - Staff Accountant/Payroll Administrator

Many of our small business clients ask if they can reimburse their employees for health insurance. Although you cannot give your employees money directly for their healthcare expenses, there is a tax advantaged health benefit that allows employers to reimburse their employees for their healthcare expenses. This benefit is called a Health Reimbursement Arrangement or an HRA. Outlined below are the three HRA options that work best for small businesses. 

Qualified Small Employer HRAs (QSEHRAs)

  • Businesses with fewer than 50 employees that want to offer a reimbursement benefit to more than one employee
    • Must be a full-time employee
    • Must have completed at least 90 days of service
    • Must be at least 25 years of age
  • Cannot be offered alongside a group policy
  • Businesses choose a monthly benefit allowance of tax-free money to offer each employee
    • The 2021 contribution limits are $5,300 for a single employee and $10,700 for family coverage
    • All employees must receive the same allowance (amounts can differ based on family status)
    • Fully funded with employer contributions, with none from the employee
  • Employees buy what fits their personal needs, submit expenses to the company and the business reimburses the employee from their monthly allowance
    • Employee must obtain minimum essential coverage as defined in the Affordable Care Act (ACA)
    • Employees can be reimbursed for any item listed in the IRS Code Section 213(d), though the business can limit this list 

Individual Coverage HRAs (ICHRAs) New in 2020

  • Available to employers of all sizes
  • Only available for employees that are enrolled in individual health insurance
    • Employees enrolled in a family member’s group policy cannot participate
  • Not subject to contribution limits
  • Employers can offer different amounts to different classes of employees
    • Full-time, part-time, seasonal, salaried, non-salaried etc. 

Excepted Benefit HRAs (EBHRAs) New in 2020

  • Offered alongside a group health insurance policy to help reimburse employees for other out-of-pocket medical expenses
    • Capped at $1,800 per year per employee
    • Cannot be offered with any other HRA
    • Can be used for Dental and Vision coverage
    • Employees can use and EBHRA even if not enrolled in the group plan, if the employee is part of a spouse’s group plan or if the employee’s share of the group plan is not affordable 

We hope this information gives small businesses an idea of the options that are available to reimburse employees for some of their healthcare expenses. This article is snapshot of what each HRA offers and any stipulations they may have. For additional information or if you are interested in offering an HRA to your employees, please reach out to one of our Business Service professionals.