Exploring Healthcare Options: Is an Individual Coverage HRA Right for Your Small Business?

As a small business owner or HR representative, choosing the right healthcare option for your team is crucial. One option gaining attention is the individual coverage health reimbursement arrangement (HRA), which is known for its flexibility compared to traditional group insurance plans.

What Is an Individual Coverage HRA?

Introduced in January 2020, individual coverage HRAs allow employers to reimburse employees for individual health insurance premiums and other medical expenses tax-free. This arrangement lets employees select their own plans, which can be tailored to meet their personal health needs.

These HRAs offer important benefits but also come with some potential drawbacks.

Benefits of Individual Coverage HRAs

• Flexibility: Employees have the freedom to choose their own health plans.
• Cost Management: Employers can set fixed reimbursement amounts, which may help in budgeting.
• Employee Retention: Coverage is portable and remains with employees even if they change jobs.
• Tax Benefits: Contributions are tax-deductible for the employer and tax-free for the employee.

Potential Drawbacks of Individual Coverage HRAs

• Administrative Complexity: Implementing and managing individual coverage HRAs can require more administrative effort.
• Variable Market Conditions: Costs and availability of individual plans can vary, potentially affecting employee satisfaction with available choices.
• Employee Responsibility: Employees are responsible for selecting their own insurance, which might be challenging for some.

Which Employees Can Benefit from Individual Coverage HRAs?

Any employer can offer these arrangements to any type of employee, including full-time, part-time, seasonal and others. They are particularly beneficial when traditional group coverage is not feasible or preferred. It is important to note that an employer cannot offer the individual coverage HRA to the same group of employees who are also offered the opportunity to enroll in the employer-sponsored group health plan.

Considerations Before Choosing an Individual Coverage HRA

As with any employee benefits offering, this type of program comes with some important considerations. They include the following:

• Compliance and Regulation: It's essential to ensure that all legal requirements are met and employees are properly informed about their options.
• Support and Education: Providing support and educational resources can help employees make informed choices.
• Market Dynamics: Keeping informed about the individual insurance market is essential, as fluctuations can affect the options available to employees.

Weigh Factors Carefully

Individual coverage HRAs offer a unique approach to managing health benefits by combining flexibility with cost control. However, they also bring challenges, such as increased administrative responsibilities and reliance on the individual insurance market's stability. For businesses considering this option, it's important to weigh these factors carefully to determine if an individual coverage HRA aligns with your organizational goals and your employees' needs.

If you have questions or want to determine if an individual coverage HRA is right for your business, contact Hylant.

Related Reading: Employee Benefits: A Critical Tool for Small Business Success

The above information does not constitute advice. Always contact your employee benefits broker or trusted advisor for insurance-related questions.