In a tight labor market, employers look for any advantage in attracting and retaining good employees. Many small employers have never been able to afford to offer health insurance. Although HRAs have been around for a while, some recent changes make them even more accessible for small employers. The problem is many businesses either don't know about HRAs or think it won't work for them. Here are four common misconceptions about HRAs — and the real story behind each.
Misconception 1: HRAs don't apply to small employers
There are two kinds of HRAs that are intended to
There are some fundamental differences in the way ICHRA and QSEHRA work. While both are options for small businesses, it's important to note that ICHRA can be offered to different classes of employees (like full time or part time, hourly or salary), by different family size and age, and has no employer contribution limits. QSEHRA is only for small employers with 50 or fewer employees, is subject to annual contribution limits and is
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Misconception 2: HRAs cost the employer more
Business owners determine a set budget for their employees to reimburse for health insurance, and workers choose the plan that works best for them. For those small employers already offering small group plans, HRAs allow employers to effectively get out of the risk management game. While group premium prices go up every year, HRA allowances are predictable and set, determined by the employer. For those new to benefits altogether, it's an affordable way to get started offering quality benefits to your team and it can scale as you grow.
If employees don't use all of their HRA allowance in a given month, the balance will roll over to the next month, but the funds remain with the employer. At the end of the year, the employer can decide whether or not to roll year-end balances over to the next year or reset. Any unused funds remain with the employer.
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Misconception 3: HRAs are complicated and inflexible
Actually, HRAs are much simpler and more flexible than group plans. Rather than trying to find a group health insurance plan that works for all employees, the employer sets up a tax-free reimbursement allowance for workers who can then pick the health insurance plan that best meets their needs (via their state's healthcare exchange or healthcare.gov).
ICHRA and QSEHRA programs do not have participation requirements. Because they are not traditional group health insurance plans, there are no carrier-specific underwriting and eligibility rules that apply to the employer. Instead, each eligible employee is offered a chance to participate and take advantage of the benefit or not. It's their choice.
HRAs are especially beneficial for employees who are hard to keep on a group plan, like part-time or remote workers. ICHRA can be a good fit for remote employees in these situations, allowing them to enroll in localized coverage.
An HRA can be set up at any time of year and running within days. When an employer introduces an ICHRA or QSEHRA program, it creates a "special enrollment period" for eligible employees — allowing them to shop for the plan that best meets their needs. All plans then renew on January 1 with employees shopping during Open Enrollment in November and December.
Misconception 4: HRAs don't offer as many benefits as traditional group plans
Instead of choosing from a limited number of options, employees can choose any Affordable Care Act (ACA)-compliant plan on the market (via their state's exchange or healthcare.gov). All ACA-compliant plans in an individual market cover Essential Health Benefits (EHBs), offer free preventive care (with no cost-sharing), and provide coverage for pre-existing conditions. Also, premiums do not change based on someone's health status (no medical underwriting). HRAs integrate with all ACA-compliant plans that include no annual or lifetime limits on the dollar amount for coverage of essential health benefits. Medicare-eligible employees can use their allowance for all types of Medicare premiums, too. HRAs are also portable, meaning if an employee loses their job, they don't lose their health insurance.
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HRAs are a great "on ramp" for small employers to offer health benefits for the first time. In fact, when the ICHRA rules were finalized in 2019, the federal agencies in charge of the new rules estimated that approximately 1 million employers would offer coverage via HRAs. That works out to 11.4 million employees receiving an ICHRA offer of coverage from their employers by 2029.
When this year's open enrollment comes around, consider HRAs. Begin with a defined employer benefits strategy that considers your business goals, your employees' needs and your budget. HRAs may be the solution you've been looking for to offer your employees health insurance without blowing your budget.
