paper cutouts of people and hearts with stethoscope
Reimbursement plans, low-cost health plans, and health insurance savings plans are all options for small business owners to offer employees when formal insurance is unaffordable. — Getty Images/tomertu

Employers with fewer than 50 employees aren’t required to offer employee health insurance. But the decision to avoid that expense is not as simple as it may seem. Without a robust benefits package, it’s tough to attract and retain high-quality talent — and talent is an employer’s biggest asset. The question, then, is not whether a business can afford to offer health care benefits; but rather, can it afford not to?

Fortunately, health benefits are not an ‘all or nothing’ proposition. There are ways to spend less while helping employees obtain the insurance coverage they need. Here are three health insurance alternatives your business should consider.

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

Since they are not required to offer insurance, qualified small employers—those with fewer than 50 full-time equivalent employees—can offer a health benefit instead, called a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).

QSEHRAs allow employees to obtain insurance elsewhere and then be paid back for medical expenses, including premiums, deductibles, co-pays and prescription medication. Anything allowed by the IRS as a medical deduction qualifies for reimbursement, up to the amount the employer determines.

The funds paid back to the employee are payroll tax-free. If the employee has a qualified insurance plan—one that offers the minimum coverage spelled out in the ACA (Affordable Care Act)—the payment is also income tax-free. There are annual maximums ($5,150 for individuals and $10,450 for families), but no minimums.

[For more clarification on health insurance terminology, check out our acronym guide.]

Bronze health insurance plans

Under the ACA, insurance plans are organized into four “metal categories,” from Bronze to Platinum. Bronze plans are the least expensive to buy and come with a high deductible—the amount the insured must pay out of pocket before the insurance kicks in. For some employees, these plans can be a good choice. The premiums are comparably low and, in case of catastrophe, they’ve got coverage. For a small business struggling with the cost of employer-provided health insurance, these plans might be the only choice.

Depending on details like average salary, businesses with fewer than 25 employees may qualify for a tax credit to help with the cost.

Health Reimbursement Account (HRA)

Employers offering a high-deductible plan have an option to extend an additional benefit. A Health Reimbursement Account (HRA) reimburses employees for health care expenses. Eligible expenses include the amount paid out of pocket to cover deductibles and co-pays as well as prescription medications.

An HRA is funded by the employer, who decides on the amount to set aside each month, for each employee. When employees incur a qualified expense, they provide proof and are reimbursed.

When coupled with an ACA-compliant insurance plan, the HRA funds are tax-free. For someone in the 22% tax bracket (those earning between $38,000 and $82,000), every dollar the employer contributes equates to $1.22 in health benefits.

If an HRA sounds like the QSEHRA mentioned above, it’s because the mechanics are similar. They are both employer-funded benefits. They are both payroll tax-free for the employer and income tax-free for the employee, provided they are used as intended. The important difference is the QSEHRA is offered by employers in lieu of offering insurance, while an HRA is offered in addition to insurance. They are both tools a small business can use to create a benefit package to attract and keep good employees.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Published April 24, 2019