No two employees are exactly the same and as such, they might have vastly different healthcare needs. But unless their employer offers a vast array of plans, it’s likely that at least some employees will end up under-covered or overpaying. If you fall into either of those categories, it’s fair to say you wouldn’t be satisfied with your health insurance coverage.
The new Healthcare Reimbursement Arrangements (HRAs) can solve that issue without adding a huge cost to the employer.
What are HRAs?
HRAs are bank accounts employers can fund for their employees to use for qualified medical expenses.
Why are HRAs Good for Employers?
- Like all HRAs, they’re tax-deductible.
- They’re still unfunded accounts which means the money isn’t directly available to the employee like it would be in a Healthcare Savings Account (HSA). Instead, the HRA amount is more like an allowance the employer gives to its staff. The employees pay for their healthcare costs, and then the employer reimburses them from their general account.
- HRAs are still owned by the employer. That means when the employee leaves the company, their HRA allowance gets reabsorbed back into the employer’s general accounts.
- They’re more flexible than other HRAs. The new HRAs can be tailored to meet the needs of both the employer and employees. Employers can choose how much to fund in each account, which medical expenses they want to cover and whether or not they want to give retired employees access to their HRA.
- They allow employers of all sizes to pick less expensive health insurance plans while still maintaining good health benefits for employees. This is important because recent HR surveys show that workers are considering healthcare the most important benefit when deciding which job to take. So if you want to attract talent, an HRA might be the key to bridging the gap between the health insurance you can afford and the insurance prospective employees want.
Why the New HRAs are Good for Employees
- Like all HRAs, they’re tax-free. That means no matter how large the employer’s allowance, employees don’t need to claim the money as income on their tax return.
- They can lower employees’ out-of-pocket costs. Unless an employer pays 100 percent of its employees’ premiums (which is rare), their employees will be sharing at least some of the cost of their health insurance. With the new HRAs, employees can choose a High Deductible Health Plan (HDHP), which usually has lower a premium and higher deductible than a traditional plan, and use their HRA allowance for the higher deductible. This could reduce the overall cost of healthcare. They can also use them to pay for dental coverage if their employer doesn’t offer a plan.
- They allow employees to buy the health insurance plan they want. The new HRAs are so flexible, that if an employee doesn’t like the health insurance options their employer offers, they can use their HRA allowance to purchase a plan in the private market.
- They give a vehicle for retirees to access money for healthcare. Since employers can choose to give their retired employees access to their HRA plan, retirees can have increased flexibility in the types of healthcare they have access to.
Since the new HRAs offer the ultimate flexibility in the type of health insurance an employee can choose, employees are less likely to be over-insured (i.e. overpaying for health coverage they don’t need), and they’re less likely to be under-insured which could lead to huge out-of-pocket costs. This means employees are more likely to be satisfied with their health insurance because they have the benefits that matter to them.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.