If you own or manage a business that offers employee benefits, you’ve probably felt the sting of rising healthcare premiums over the years. Every year, it seems like costs creep up — and there are not a lot of great options out there. You want to offer competitive medical benefits to attract and retain top talent, but you also need to keep your company’s budget in check.
One strategy that’s gaining a lot of traction is using an HRA (Health Reimbursement Arrangement) as option in your employee benefits plan. It’s a smart, flexible way to give employees access to quality healthcare while helping you lower healthcare costs.
What is an HRA?
An HRA is an employer-funded benefit that reimburses employees for qualified medical expenses — and in some cases, even health insurance premiums. Unlike an HSA (Health Savings Account) or FSA (Flexible Spending Account), the employer owns and funds the HRA. Employees don’t contribute to it, and if an employee is terminated, those unused funds stay with the company.
The beauty of an HRA is that it’s completely customizable — you decide how much you want to contribute and what expenses will be eligible for reimbursement (within IRS guidelines). This allows you to build a plan that fits both your budget and your team’s needs.
Why HRAs Work for Small Businesses
If your a small company, you don’t have the same bargaining power as large corporations when it comes to negotiating group health premiums. This often means you’re stuck with a few costly options. HRAs change the game because they give you more control over costs and flexibility in plan design.
Here’s why small businesses are paying more attention to HRAs:
- Cost Control
- You set the reimbursement limit for each employee.
- Any unused funds are owned by the employer.
- Better Plan Choices for Employees
- With an HRA, employees can choose the individual health plan that works best for them (often through the Covered California marketplace or a broker).
- This is especially helpful if you have employees in different regions, since premiums and network availability vary by county.
- Tax Advantages
- Your contributions are 100% tax-deductible as a business expense.
- Employees receive the reimbursements tax-free for qualified medical expenses.
- Retention and Recruitment
- Offering an HRA shows employees you care about their healthcare needs, even if you’re not offering a traditional group plan.
- For younger companies that can’t yet afford full-scale group coverage, it’s a competitive edge in hiring.
Popular HRA Options for Small Employers
If you’re considering adding an HRA to your benefits package, there are a few of models that work especially well for businesses under 100 employees:
- MERP (Medical Expense Reimbursement Program)
- Familiar setup using a traditional health plan as the base.
- Allows dollar amounts to be highly customizable and flexibility with plan design.
- QSEHRA (Qualified Small Employer HRA)
- Designed specifically for businesses with fewer than 50 full-time employees.
- Lets you reimburse employees for individual health insurance premiums and other eligible expenses.
- Annual reimbursement limits are set by the IRS.
- ICHRA (Individual Coverage HRA)
- Available to businesses of any size, but great for small companies wanting more flexibility.
- Allows different reimbursement amounts for different classes of employees (e.g., full-time vs. part-time).
- Employees must be enrolled in individual health insurance to participate.
How HRAs Can Lower Costs and Boost Value
Offering benefits is one of the biggest investments you make in your employees. An HRA gives you a way to lower your company’s healthcare costs while still giving your team meaningful benefit options.
For many businesses, HRAs can be a win-win. You get control over your benefits budget, and your employees get the freedom to choose coverage that actually works for them. It’s worth exploring this option before your next renewal.
Contact us today to run the numbers and see how an HRA might fit into your current employee benefits plan!
