How would you like a way to save fifty-percent, or more, by giving your employees Tax-Free dollars to buy their own “private” health insurance policies? The most serious economic challenge facing businesses today is reducing the cost of healthcare. Far too often employers are drastically reducing healthcare benefits and deferring more of the monthly and yearly costs back to the employees and their families. If your company is providing group health insurance, you need to know about the changes in the law that have created the most dramatic and money saving opportunities since World War II, when employers were first allowed to provide tax-free health insurance benefits during the rate freeze.
In today’s business world, employees are quick to go elsewhere if they see a better career opportunity. Providing good benefits is essential to retaining the best employees, but group health insurance can be too expensive for some small business owners to sustain.
A Health Reimbursement Arrangement (HRA), sometimes called “Section 105 Plans”, allows you, the employer, to reimburse your employees for their individual health insurance premiums and/or expenses, taking you out of the middle. Employees will carry their own private coverage which is totally portable and not tied down to their employment. Your employees will also love the fact that they now have the benefit of guaranteed health insurance for life, even if they become too sick or hurt to work, or decide to retire early. Premiums cannot be raised, nor can policies be canceled because of a catastrophic illness, injury or job loss. The employees will each get to choose the insurance plan and plan options, such as deductibles, that best suits their family’s needs. It also allows your employees and their families to work with a health insurance expert to get the best value for their situation. Many are choosing Health Savings Accounts as a way to further reduce their health insurance costs. Once everyone is approved they will have permanent coverage that is not tied down to their employment. And you, the employer can get out of the health insurance business, for good.
Employers will no longer be required to administer the plan, and you no longer have to shop it every year with an HRA established. This gives the employers the ability to get rid of their overpriced and profit-draining group plans and give tax-free dollars directly to their employees through an HRA. The employees can purchase their own better, safer and permanent private health insurance polices. The savings can be huge with premiums averaging fifty-percent less than typical employer-sponsored plans. HRAs, along with HSAs, represent the newest and most cutting-edge development in the employer-sponsored health benefits. While usually a high-deductible plan is chosen for the insurance portion, there is no requirement to do so, and any approved plan can be used. When employees carry their own private health insurance coverage, there are also no COBRA issues to deal with when employment terminates.
HRAs represent the future of health insurance in America. They are the only employee benefit vehicle allowed to pay for premiums on individual health insurance! Best of all you, the employer, decide how much of an allowance you want to provide and your contributions are completely tax deductible for you and tax-free for your employees! Congress created the HRA as the newest consumer-directed plan designed to cover medical expenses and it is subject to IRS regulations and guidelines.
Employer funds are used to reimburse employees for qualified medical expenses in accordance with the pre-established employer arrangement. The arrangement specifies a dollar-limit for the amount of qualified expenses that will be reimbursed to an employee each year. The arrangement also usually specifies that any unused allocation of funds can be accumulated and carried over for use next year. IRS requirements for qualified medical expenses also apply. Employer payments are a tax-deductible business expense and reimbursements to employees are tax-free. Availability of plans is limited to the qualified plans offered by insurance companies conducting business in your State.
Since the employer owns the funds until presented with valid receipts, there are no actual funds accumulated that employees own to rollover to a new employer or take with them if they leave the company. An employer could continue to reimburse a former employee if he chooses to do so, such as retirement.
As for the forty-something percent of employers, and growing, who do not offer group health insurance because it is too expensive, now there is an affordable solution; give your employees tax-free money to buy their own, better coverage at a fraction of the cost of group insurance.
Why are so few employers taking advantage of them? That is a great question! It is surprising that very few attorneys, accountants, insurance agents, benefits administrators or benefits consultants are even aware of these new “defined-contribution” plans, but that does not mean that you need to continue wasting thousands of unnecessary dollars every year on health insurance and double-digit rate increases! (Have your tax advisor refer to section 213(d) of the Internal Revenue Code. Health insurance premiums were added to 213(d) in 2004 as allowable tax-free reimbursements from employers)
In conclusion: This is great news for Employers. They can finally get out of the health insurance “business”. If you want to finally escape your “health insurance nightmare,” yet still attract, retain and have outstanding and grateful employees. You create these savings through a Health Reimbursement Arrangement (HRA). Employers can save as much as fifty-percent or more on their healthcare costs. This gives the employer flexibility and cost savings for the health insurance and the employees can purchase their own better, safer and permanent private health insurance polices. Health insurance premiums cannot be raised, nor can policies be canceled because of a catastrophic illness, injury or job loss. The employees will each get to choose the insurance plan and plan options, such as deductibles, that best suits their family’s needs. On top of all of this, the employer gets a tax break for contributing and employees receive the benefit tax-free. This will increase profits and your employees will be much happier. What more can an employer ask for?
Butch Zemar
HRA/HSA Expert
www.EliteBenefits.net
Blog.EliteBenefits.net
Posted in 1 Tagged: Employer Sponsored Plan, Health Insurance, Health Reimbursement Arrangement, Health Savings Accounts, HRA, HSA Plans, HSAs, Small Business Insurance
