Health Benefits: What to Consider and How to Provide Them

Health insurance is one of the main deciding factors when attracting talent. Historically, small business has been at a severe disadvantage. Is it changing? Yes, but as our story about Gerri will show, the devil is in the details.

Your business is doing well. But what’s next? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Gerri's Story

Nurse EntrepreneursGerri owns a successful cleaning service. She has been growing her business over the last couple of years. As she has grown, her headcount has risen, and now, she was rapidly approaching the magic number of 50. Once an employer hits 50 employees, that employer must comply with the Affordable Care Act (ACA), also known as Obamacare. She knew she needed to do something, but what? 

The Alphabet Soup of Health Insurance

In order to talk about what Gerri decided to do, we need to take a detour through alphabet soup that is the U.S. Employer-based healthcare system. If you think Universal Healthcare is a new idea, think again. Its origins date back to the 1930s, almost 100 years ago. 

If you want to skip over the history and options, you may. They are there for reference.

Brief History of Employer-Based Healthcare

Employer-based healthcare arose due to the worker shortage caused by World War II. It was a means to attract workers and remains this way until today. In the 1960s, Medicare and Medicaid were instituted. This created the four-tiered system we have today: the poor, the aged, the employed, and the uninsured. With the demise of manufacturing, the share of the uninsured rose and coverage of the employed worsened. This accelerated until the passage of the Affordable Care Act of 2010.

ACA (Affordable Care Act)

This federal law instituted the employer mandate. It requires companies with at least 50 or more full-time and full-time equivalent employees (ALEs) to provide affordable health coverage or pay a penalty. Much of the other elements were never enacted, and the remainder has been significantly weakened. Leaving us the morass of suboptimal options we have today

A Brief Summary of Options

Non-ALEs

If you have less than 20 employees, your options are limited. Group coverage is usually too expensive. You are likely better off with reimbursing employees, who carry their own coverage. There are two programs available to you. QSEHRA (Qualified Small Employer Health Reimbursement Accounts) and the new ICHRAs (Individual Coverage Health Reimbursement Accounts). Both allow you to reimburse employees for their personal health insurance premiums up to set limits. QSEHRA has maximum limits set by the government while ICHRA is set by the employer.

ALEs

With more employees, more options are available. There are the classic group plans. As much in healthcare these past 4 years, uncertain reigns. Aside from the group plan, the remaining options are uncertain and in legal limbo. 

HRA ChangesDepending on the route you take, there are several options for reimbursement. First, there is EBHRA (Excepted Benefit Health Reimbursement Accounts). These are employer-funded plans used to supplement coverage. EBHRAs can be used by employees to pay for co-pays, deductibles, and other non-covered items. Second, there are HSAs (Health Savings Accounts), which allow tax-free contributions that can be used for qualified medical expenses. Lastly, there is ICHRAs, as discussed above. All have limits, and each varies. They can be used in combination although ICHRAs and EBHRAs are somewhat redundant. 

Back to Gerri and Her Healthcare Benefits

Sorry for the detour, but it was necessary to understand what she chose to do and why. Gerri did want to deal with the uncertainty around the non-ACA compliant plans although the price was steep. The only viable plan was a high-deductible plan. She wasn’t thrilled with it. Therefore, she decided to institute both HSAs for employees to help offset the costs and EBHRA to supplement the policy. Even so, the cost high, and it created a drag on her profitability. Gerri needed to rethink her business model to see how she could drive more profit to offset these costs, which ranged in the hundreds of thousands

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

HRA Changes: What Every Small Business Should Know

HRA Changes

The HRA changes can mean big things for Small Businesses. Why? The new HRA changes allow small businesses to fund employee premiums, using the individual health insurance market. Of the crazy things proposed to “repeal and replace” Obamacare, this one has the potential to be beneficial.

Thinking about making changes to your business? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

What are the HRA Changes

First, let’s start with what is an HRA (health reimbursement
arrangement).  An HRA is defined as

A Health Reimbursement Arrangement (HRA) is an employer-funded account that helps employees pay for qualified medical expenses not covered by their health plans. HRAs are compatible with all types of health insurance plans, and they are owned by the employer.

– Bank of America

How do the HRA changes work?

As an employer, we set aside a fixed amount of money to a worker’s HRA each year for his or her to use. Unlike other health spending accounts, only an employer can put money into your HRA. The money is available at the beginning of the year. HRA benefits can be carried over if we wish to make that our policy

Why is this important?

The new HRA changes allow you to fund employee premiums in the individual health insurance market. So, instead of the hassle of working with an insurance broker to find a group insurance plan, you can set aside a fixed amount for each employee. He or she would then have the flexibility to purchase the plan that works best for them.

What Small Businesses Should Know About the HRA Changes

First, the new rule is set to go into effect on January 2020. The rule will
allow for expenses such as medical, dental, and vision premiums.

What’s Changed in the HRA

Historically, health insurance has been tied to large employers. Consequently, it was not designed to serve small businesses or independent contractors. As a result, small business were at a disadvantage when attracting talent. Ironically, this is where the bulk of Americans work.  Thus, why we have the highest rate of uninsured people in the first world.

Even in large companies, management selected the plan. It was
one-size-fits-all. If you left the employer, you could qualify for COBRA, but
after six months, you were out of luck.

Now, instead of management choosing the plan, employees can. This shifts it
from a defined benefit to a defined contribution. Whether this leads to better
overall coverage remains to be seen. It’s not all smooth sailing, but on the
whole, it’s likely to be beneficial.

First, The HRA changes Create A Lighter Healthcare Admin Burden

The dirty little secret about group health plans is the high administrative costs. It costs the business time to review all the plans.  The broker takes a cut, and the list goes on. The changes to the HRAs lessen these burdens and costs.

Second, It Doesn’t Eliminate the Healthcare Admin Burden, However

The old adage “You don’t get something for nothing” is alive and well. The HRA changes still leave small businesses on the hook administratively in three key areas.

First, you will need to read and comply with a set of documents in order to
be eligible. Second, you will have to show compliance and verify that employees
are maintaining coverage. Finally, you will be required to provide annual reporting.
Technology will likely make this easier, but it won’t go away completely.

Third, and Most Importantly, The Money Is Tax-Free

Employee health expenses were always deductible, but the administrative burden was a hassle. To avoid that hassle, roughly 10% of small businesses were bumping up salaries to avoid coverage. Those companies will benefit significantly from the HRA changes since they will no longer have to pay additional payroll taxes.

Fourth, HRA changes Allow Gig Workers to Get Coverage

The wider scope of the HRAs allows for employers to cover seasonal and
part-time employees. Even independent contractors are eligible. Importantly,
the coverage is portable. So, if a Gig employee leaves, they don’t lose the
plan. 

Finally, No Minimum Enrollment Requirements in the HRA changes

One of the key hurdles for small businesses was the minimum enrollment
requirements for group plans.  This left
small businesses ineligible because they lacked the minimum number of
employees, or had to pay huge premiums because of their small size.

In summary, the key thing small businesses should know about the HRA changes is how this helps us to attract talent. In our post, “3 Ways to Attract the Best Talent More Often”, we mention how small businesses can use personalization to their advantage. The HRA changes help us do just that. Instead of losing talent because of health insurance coverage, we can compete more effectively.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.