Podcast Key Highlights

  • Why Are Small Businesses Choosing to Offer Health Reimbursement Arrangement (HRA) Plans at Increasing Rates?
    • Many small businesses are struggling to pay healthcare premiums for their employees.
    • With healthcare costs rising, HRAs are a way for small businesses to get out of the healthcare business.
  • How Do HRAs Work?
    • Small businesses contribute money to their employees HRA account.
    • Employees can then take that money and buy whatever health insurance they want.
    • When you contribute money to an HRA account it’s a tax deduction for your small business.
    • When employees use money in their HRA, they don’t get taxed on it.
    • Employees can go to federal or state-run healthcare exchanges and find a policy that’s right for them.
    • If they don’t want to go to the exchanges, some small businesses provide a list of approved insurance providers.
  • What Are Other Benefits of Offering an HRA?
    • Small businesses have less paperwork to process, less administrative tasks around healthcare and less liability.


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Gene (00:02):

Hey everybody, it’s Gene Marks, and welcome to another episode of the Hartford Small Biz Ahead podcast. This week I would like to talk about health reimbursement arrangements. There are different types that are out there, but they are really important for us to know about, why? Because I have seen an explosion in my clients and readers and other small businesses who are now offering HRAs, these health reimbursement arrangement plans. Some are called health reimbursement arrangements, HRAs. These are… why? Because HRAs are a way for you to get out of the healthcare business. Now, I know… I don’t want this to be understood in any different way. It’s just that so many small businesses are struggling with paying your healthcare premiums for their employees and of course for ourselves. And it becomes more and more of a burden every year.

Gene (01:03):

Healthcare costs have risen between five and 10% for at least the last 10 to 15 years. It doesn’t look like there’s gonna be any relief for this in the future. In addition to the increase in healthcare costs, there’s cost for administering all of this stuff as well. And then there’s time you have to spend negotiating with your healthcare providers at the, every year for better deals for yourself and your employees, and trying to understand the complexities of the healthcare market and choosing the right plans. A lot of my clients are concerned about potential privacy or HIPAA concerns. I mean, a lot of times when you’re evaluating your health insurance, you need to know sort of the health history of your employees in your business. And some people feel uncomfortable with that because they really don’t want to know about the health history of their employees in their business, you know?

Gene (01:52):

And so it’s a concern, which is why HRAs health reimbursement arrangements have just become so much more popular. Why? Because with an HRA, you can stop doing all this stuff. Now, you can still have a regular group insurance plan if you want to do that, but I have a lot of clients, particularly small businesses, that are literally getting rid of their health insurance plans and instead starting HRAs. How do these HRA work? Well, in a very simplified manner, it’s this, your employees get their own health insurance. You set up HRA accounts for your employees… it’s a company thing. And so each employee has an account like a 401K, but you contribute money to your employee’s HRA account. Now, when you contribute the money to your employee’s HRA account, they can take that money and then go out and buy their health insurance wherever they wanna buy it from. Now, when you contribute money to your employee’s HRA account, it’s a tax deduction for you. When your employee receives that money, when they get that money and…

Gene (02:59):

Assuming that they have to use it for qualified, healthcare plans or premiums, they don’t get taxed on it at all. So it’s a non-tax thing. When your employee gets the money from you or they get reimbursed from you, they go to find out where they can get their own health insurance. Now, there are plenty of places that do this. The most popular one are the healthcare exchanges. So there’s a federal healthcare exchange, depending on whether or not your state provides it, or there’s state run healthcare exchanges. And so your employees can go to those healthcare exchanges, maybe find a better policy or something that more is suitable to them, and then you reimburse them for it. If they don’t wanna go to the exchanges. I have some clients that offer a list of, sort of approved local benefit providers or insurance brokers that the employees can talk to as well.

Gene (03:48):

Now, how does this save you money? Well, for starters, and I’m kind of hoping that you’re still gonna contribute the same amount of money that you were contributing before. So it’s not actual cash, but think about time. Think about all the time that you and maybe your other managers HR person or office manager is spending negotiating these new healthcare plans and dealing with the paperwork and the administration. Think about all that and think again, of the potential liabilities for any privacy concerns that you might have about your employee’s healthcare history. Well, all of that goes away. So you continue to contribute to your employee’s healthcare, but you’re leaving all the decisions of what they want to do for their healthcare up to them, and they go and get their own healthcare plans. Now it is, one other thing to just bear in mind, not that I’m suggesting this, but it, I have some clients that do it, is, you are in control of what you contribute to your employees.

Gene (04:42):

So if you contribute a thousand dollars a year to your employee’s HRAs and health premiums go up 10%, you can still contribute that thousand dollars. I mean, it’s up to you. Hopefully you’ll be keeping up with the costs that are out there so that your employees are getting a good deal. But that obviously is gonna be between you and your employees. HRAs themselves have gotten so many of my clients out of the healthcare business because it’s basically pushed all the responsibility of buying healthcare onto the employees. The employees can decide what plan is best for them. Now, there are some companies that are out there that will help advise your employees to and help them navigate through like the healthcare exchanges. So you can Google around from them or ask a benefits administrator to provide that help, because sometimes those decisions can be a little bit complex. But let’s face it, I mean, providing healthcare is tough. And when you’re a small business, you’re competing for good talent. You wanna retain your employees. And a lot of people, healthcare is like the number one requested benefit out there. You can’t not have an answer when a prospective employee says, what kind of healthcare do you offer. Nowadays? You can’t just say, we don’t offer any healthcare at all. That’s not good. What…

Gene (05:57):

You can do is you can say, we have an HRA plan, where we as an employee contribute something to that plan so that our employees can then take that money and use it to buy their own healthcare. That is a healthcare benefit. And it gives you, the ability to, to have those kinds of discussions with prospective employees and hopefully not lose those employees. Now, there are different types of HRAs that are out there. There are standard plans, there are individual coverage plans, there are qualified small employer plans. This is just a quick podcast, so I don’t wanna get into the pros and cons of each of them ’cause they’re all all slightly different. But they all work on the same premise, which is you don’t provide healthcare anymore. You let your employees go out and get their own healthcare.

Gene (06:43):

You contribute tax free to the employees to get their own healthcare. Therefore, you can wipe your hands clean of all the healthcare related issues and things that are costing you money and time and potential liability. Let your employees make their own healthcare decisions. So in conclusion, if you haven’t already considered a health reimbursement arrangement, I strongly, strongly suggest that you do. Do your research online. Ask a benefits advisor about that, or a labor attorney or even maybe your payroll company or accountant. Find out more about health reimbursement arrangements HRAs. Set one up and encourage your employees to take advantage of them. It will not only save you money, but it will provide an added benefit healthcare benefit for your employees that I think that they will very much appreciate. That’s my take on HRAs this week. My name is Gene Marks. You have been listening to the Hartford Small Biz Ahead podcast. If you need any advice or tips or help in running your business, please join us at SmallBizAhead.com or SBA.TheHartford.com. Hope you found this information helpful, and I will be back to you next week with some other advice to help you run your business. Take care, talk to you then.

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