HRAs Are Now An Option for Small Business Owners
A Health Reimbursement Arrangement (HRA) is employer funded to help employees pay for out-of-pocket medical expenses, such as copays and deductibles. It is IRS-approved and can be paired with any health insurance plan. How it works is the employer sets aside a set amount of money to their employee’s HRA account each year for the employee to use. Only an employer can put money into the employee’s HRA account and it becomes available to the employee at the beginning of the year.
Since January 1, small businesses can now offer their employees medical payment assistance through Health Reimbursement Arrangements (HRA). This new option does not have to be tied to a small group health insurance plan.
This option was not available under the Affordable Care Act until President Obama signed the 21st Century Cures Act on December 14, 2016. President Obama has signed this law in an attempt to lighten the burden on small businesses.
Businesses with less than fifty full-time employees are not required to offer health insurance to their employees. This new law gives them a way to contribute to their employees’ health insurance premiums through a tax-deferred HRA fund. It is a perfect for small or brand new businesses who can’t afford to offer a small group plan to their employees but are still able to contribute to their employees without a group health plan.
Before the 21st Century Cures Act was signed, HRAs could only be tied to a group plan and could only be used to reimburse doctor’s visits and care, but not for premiums. Now employers can have an HRA under the ACA, so the HRA funds can go towards reimbursing care or premiums.
The main benefit of an HRA fund is that neither the employer or employee have to pay payroll tax on the contribution. Many employers that can’t afford a group health plan give their employees a raise or bonus in the place of offering health benefits, but this pay raise is taxed.
This also helps employers who are stuck paying a portion of employees’ premiums on a plan that their employees may not even be using. Now, employees can choose a plan that works best for them and can choose to use their employer’s contribution toward their premium or toward any other health care expenses.
Each employee has an equal amount available to them and can only fluctuate based on the employee’s age and family size.
A small business owner can set aside $4,950 for an individual employee’s plan or $10,000 for a family plan. If the employee does not use all the money for their health expenses, then the business owner gets to keep any amount leftover.
The HRA gives small business owners a new option, but if they are able to afford a group health insurance plan that is still the better option.
When a business owner gets a group plan, the premiums are tax deductible and the employee share that comes from their payroll is also tax deductible. The HRA is a good option for those who can’t afford a group health insurance plan but still want to contribute to their employees’ health expenses.
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