Under the Affordable Care Act, all full-time employers and their dependents are mandated to offer health coverage to employees and dependents.
Employers have various options available to them for providing this coverage for their employees. In this article, we’ll look at three great strategies available to small businesses: health reimbursement arrangements (HRAs), employer-sponsored plans and health stipends.
Health Reimbursement Arrangements (HRAs)
An HRA (Health Reimbursement Account) is an account in which your employer contributes money that you can use to cover qualifying medical expenses tax-free for both of you. There are various kinds of HRA plans, allowing you to select one that works best for your circumstances – some HRAs can integrate with medical plans while others enable pretax purchases of individual health coverage or offer flexible reimbursement rates for expenses incurred throughout the year.
The integrated HRA is the most prevalent HRA option available, acting as a stand-in benefit that works alongside your employer’s group health plan. You may choose to participate even if you decline enrollment into their policy; typically this HRA type is offered by companies with 50 full-time employees or fewer.
Employers also may offer tax stipends as an easier alternative to offering traditional group health plans. Such payments would need to be reported on all three tax forms as taxable income and reported accordingly.
There are other forms of HRAs as well, such as Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) and Individual Coverage HRA (ICHRA). Both plans aim to help employees purchase individual health insurance with pretax dollars while offering flexibility when it comes to covering certain expenses such as copayments and deductibles.
One downside of HRAs is that funds aren’t portable – meaning you can only access them while employed at that company. Furthermore, HRAs usually require enrolling in an HDHP in order to be eligible.
Employer-Sponsored Health Insurance Plans
Employer-sponsored health insurance plans (also referred to as group health plans) are an invaluable benefit many employers provide their employees as part of a benefits package. Employer-sponsored group health plans (often known as group health policies) are the primary way Americans receive major medical coverage; usually cost is split between employee and employer with the latter usually covering most. Employees are usually allowed to select which policies best meet their needs from a list provided by their employer such as PPO and HMO policies.
The Affordable Care Act mandates that businesses with 50 or more full-time equivalent employees must offer health insurance or pay a penalty, creating a considerable financial burden on some smaller firms – but that doesn’t mean these organizations cannot still offer healthcare to their staff members.
Small business owners may be eligible for premium subsidies and cost-sharing reductions available through the health insurance marketplace, which may help offset some of the expenses related to providing health benefits. Furthermore, the Affordable Care Act permits employers to reimburse employees’ individual health insurance premiums on an tax-free basis through health reimbursement arrangements.
Employer-sponsored health insurance plans provide both financial and psychological security to workers. Employer-sponsored plans provide vital health benefits that provide convenience and peace of mind, especially during times when medical treatment costs can quickly skyrocket due to illness or injury.
Employer-sponsored health plans often provide more comprehensive coverage options than individual policies, such as preventive services and prescription drug benefits. Furthermore, depending on the plan chosen by an employer may even cover out-of-pocket healthcare expenses such as dental and vision care costs.
When selecting health insurance coverage for yourself or your family, it’s essential to carefully weigh the benefits and costs associated with each policy type. When enrolling new members into existing plans or changing existing coverage plans, be sure to do it during open enrollment period, usually occurring each fall and spring – or a life event such as changing family status can trigger special enrollment periods where coverage can be added at any point during the year.
Health Insurance Tax Credits
Many employees value health insurance coverage, yet not all employers can cover the bill. Employer payments of an employee’s premiums typically qualify for tax breaks under both income and payroll tax regulations – significantly lowering after-tax costs for most workers. Furthermore, the Affordable Care Act offers financial support through premium tax credits to lower marketplace plan costs for those who would otherwise pay large out-of-pocket amounts for coverage.
The premium tax credit is calculated based on an estimate of household income for the year in which coverage was purchased, and then applied towards their federal tax returns when filing them. If actual income exceeds estimates, some or all of any advance payments must be repaid when filing their return; otherwise it can be used either to help subsidize marketplace coverage or lower monthly costs of employer-sponsored plans.
Income can change throughout the year, which may impact eligibility for premium tax credits and how much they receive. Any time there are changes to family size or income levels, individuals should report it immediately to their marketplace; any time a change makes them ineligible for premium credits or they no longer qualify to receive advance payments, any excess payments must be repaid when filing federal returns.
Alongside premium tax credits, there is also an out-of-pocket healthcare cost stipend available to help those most in need. Known as the cost-sharing reduction (CSR) stipend, this stipend can cover expenses not covered by their marketplace premium tax credit or employer plan deductible and co-pays.
Although not intended as a replacement for employer-sponsored health insurance, flexible health benefits like stipends can be an attractive way to supplement an ACA-compliant plan and support employee wellbeing at the same time. Employers looking to recruit top talent may find stipends helpful recruitment tools while supporting employee wellness at work.
Continuation Coverage
Continuation coverage allows employees to continue paying for their employer-provided group health plan even after employment ends or coverage through the workplace has ended. COBRA, or the Consolidated Omnibus Budget Reconciliation Act of 1985, mandates that employers and insurance carriers provide employees and their family members the option of continuing health coverage via this continuation mechanism. COBRA provides employees and their family members the option of continuing health insurance, but doesn’t cover its full cost; rather, employees and their dependents must cover both monthly premium costs (including the portion that was previously covered through payroll deductions) and may incur an administrative fee of 2% as part of this arrangement.
Employees typically have 60 days from receiving notice from the plan administrator to choose continuation coverage and review their summary of benefits and coverage. Furthermore, any questions about COBRA terms and conditions should be directed toward the plan administrator for resolution.
COBRA eligibility will depend on the circumstances that lead to its termination, for instance job loss will allow up to 18 months of coverage while divorce could extend it by 36 months.
As soon as an individual experiences a qualifying event, their employer or plan administrator will provide them with a Notice of COBRA Rights document that details all available options for continuing health coverage and any costs or requirements associated with each.
Even though the Affordable Care Act eliminated medical underwriting for individuals seeking individual health plans on their own, it can often be more practical and efficient to continue an existing policy through COBRA or state continuation coverage than searching and purchasing a new plan – especially if existing physicians and hospitals are already part of your network or if medical bills have mounted up substantially over time.
