Most Businesses offer a group health insurance plan for their employees. However, sometimes you may start working for a company that offers a health insurance stipend instead of a health plan. So, what is it? Great question, below you’ll find everything employees and employers need to know about this alternative employee benefit.
Stipend Benefits For Employees
What Is A Health Insurance Stipend?
A health insurance stipend is a set amount of money that your employer gives you to pay for individual health insurance. Typically, you receive this money in your paycheck. Think of it almost like a bonus in every paycheck. While your employer pays this extra money in hopes that you’ll use it for health insurance or other out-of-pocket medical costs, you don’t have to.
A health insurance stipend kind of sounds like an HRA doesn’t it? While both are employee benefits that go towards paying for your healthcare, they are entirely different. First, the way you receive the money is different. A stipend goes directly into your pay, while an HRA you receive a reimbursement after paying for your medical expenses. The biggest difference you’ll find is your stipend is taxable. Since it is added to your wages it works as taxable income. On the other hand, HRAs are tax-free. Another difference, as we noted above, is you can use the money however you see fit. With HRAs you can only use it towards qualifying health care expenses. With a health insurance stipend, you are free to use the money for anything from bills to savings, to buying out your amazon wishlist. Legally, your employer can’t ask you for proof that you used the money for health insurance. Who doesn’t love extra money with no strings?
The Benefits of a Health Insurance Stipend
Health insurance stipends give you a few advantages. For starters, this gives you tons of options for your health insurance. You’ll be able to pick and choose the best health insurance plan for you rather than depend on your employer’s group plan. Group plans tend to offer general basic coverage based on the needs of everyone overall. When you choose your own plan you can make sure it’s tailored specifically to what you need.
Additionally, if you receive an advanced premium tax credit your stipend won’t affect your eligibility. Advanced premium tax credits are a tax credit that you can get ahead of time to lower your health insurance premium. When you apply for health insurance through the Marketplace, you give an estimate of how much money you’ll make that year. Depending on that estimate, you may be eligible for the credit to use up front to lower your premiums. If you have group insurance through your employer you won’t be eligible for this credit.
Disadvantages of a Health Insurance Stipend
As with anything, there can be a few downsides with a stipend. Let’s say you don’t use the stipend for health insurance, instead you are covered under your spouse’s or parent’s plan. So, essentially your stipend is just extra wages and you use it for personal expenses. If your employer decides they want to switch to a group plan and no longer offer a stipend then this can seem like a pay cut. Now you’re making less than what you’ve become accustomed to. Depending on how much the stipend is, it could cause you some financial stress. Another downfall is, as we mentioned, the stipend is taxable. So with a stipend more money will be coming out of your check in taxes than it would if you didn’t have one.
Stipend Benefits For Employers
Pros Of Offering A Health Insurance Stipend
Offering a stipend can be a better option for several reasons. For one, it allows you to completely customize the benefits. There are no limitations or minimum contributions with a stipend. So, you can choose how much you pay. It can also be beneficial for small businesses who may not be able to afford to offer group insurance. The average group premium for individual health insurance is $7,911, and $22,643 for family. This way you can still offer a health benefit to your employees. Another benefit for employers is that stipends are easy to manage. It’s just a payroll addition, rather than having to manage a group plan or an HRA.
Cons Of Offering A Health Insurance Stipend
When you give your employees a stipend, they don’t have to use that money towards health insurance. You may hope they will but you can’t be sure since you legally can’t request proof of insurance. Not to mention, if your employee sees their stipend as part of their pay and you decide to stop offering it they might view it as a pay cut. Which in turn can lower morale altogether.
Types Of Health Care Stipends You Can Offer
You have two options here, you can give employees a monthly stipend to pay for all of their health care costs or divide “healthcare” into smaller more specific payments like:
Medical – This is for basic medical like doctor’s appointments, hospitalizations, preventative care, and health screenings.
Dental – For things like x-rays, cleanings, fillings etc.
Prescription drugs – This helps employees pay for any medications their doctor proscribes.
Mental health – Meant to pay for therapy, counseling, or psychiatric help.
You can also offer wellness stipends. Like health care stipends, wellness stipends are payments to help your employees focus on their physical and mental well being. However, wellness stipends are more geared towards a healthy lifestyle rather than medical health. These can be things such as:
Fitness – This can go towards gym memberships, fitness equipment, or personal trainers.
Nutrition – For things like meal delivery services, weight loss programs, or customized meal plans.
Alternative therapies – This could be anything from massages, to acupuncture, to chiropractic treatments.
Financial health – Your employees can get financial coaching or finance workshops.
FAQ
Will a stipend always be paid into my check?
For the most part yes, health insurance stipends are paid directly into your paycheck. However, instead of paying into your check your employer can also put the money into an expense card or a lifestyle spending account (LSA).
What are alternative options to health insurance stipends?
There are a few other ways an employer can opt to pay for health insurance for their employees aside from a group plan:
Health Reimbursement Arrangements (HRAs) – This is a tax-free alternative to a stipend. It lets employees tailor their healthcare package to their specific needs. HRAs require employees to pay for their own medical costs before they can file for a reimbursement. The downside is that many employees might not have access to the money they may need to pay for expensive bills. Making it difficult to pay for the services and wait for the reimbursement to process.
Health Savings Accounts (HSAs) – If a company offers a high deductible health plan for their group insurance they can also offer an HSA. Employees would choose how much of their check should go into their HSA. This lets employees set aside money before taxes to pay for health insurance.
Flexible Spending Accounts (FSAs) – An FSA works similarly to an HSA in that the employee can set aside money into the account before taxes to pay for healthcare costs. The difference is the HSA belongs to the employee. Meaning the money stays in the account even if they don’t use it and if they leave the company it goes with them. FSAs belong to the employer. So, if the employee doesn’t use it within the year they lose that money.
How much will the health insurance stipend be?
Unfortunately, there’s no direct answer for this. The company is completely in control of how much the stipend will be. There are no minimums or limits to how much an employer can offer. Ideally, the amount would be enough to cover health insurance premiums for an individual health plan.
Are there requirements for companies to offer health insurance stipends?
No, any company can choose to offer a health insurance stipend. Unlike with group plans where a certain percentage of employees need to opt in, or with HSAs where the company needs to offer a high deductible health plan first there are no requirements.
Need Help?
If your employer pays a health insurance stipend instead of a group plan then you have to enroll in your own health insurance plan. Shopping for health insurance can be time consuming and frustrating. The best way to find a cheap plan with the perfect level of coverage for you is to compare plans. That’s where EZ comes in. We’ll make the process faster and easier by letting you compare plans in your area in just a few minutes. Our licensed insurance agents work with all of the best insurance companies in the country. They can talk to you about your budget and need to help you choose the best plan. We compare plans and offer advice for free. To get your free instant quotes enter the zip code in the bar above, or call us at 877-670-3557 to speak with an agent directly.
It’s no secret that health savings accounts (HSAs) offer numerous tax benefits. These tax savings are one of the primary reasons why HSAs are gaining traction in the market. However, while HSA participation continues to increase at a rapid pace, the majority of the attention when it comes to HSA tax benefits is focused on employees. While those HSA tax benefits are great, there are less well-known HSA tax benefits for employers that are just as significant. These employer HSA tax benefits should not be kept a secret. So, whether you’re an employer that already offers an HSA program to your employees or you’re just looking into the affordability of an employer-sponsored HSA program for your company. You need to understand HSAs and the benefits they have for you.
What is an Employer Sponsored HSA?
An HSA is a tax-advantaged savings account that can be used to help your employees pay for eligible medical expenses when combined with a high-deductible health plan (HDHP). An HSA-compatible HDHP often has lower monthly premiums than lower-deductible health insurance plans. And HSA contributions are tax-deductible up to annual IRS limits. A small business can deduct all employer contributions to employee HSAs as an income tax deduction. Employers also do not pay payroll taxes on employees’ pre-tax contributions. Employees’ lower premiums under an HSA-compatible HDHP may result in cheaper cost-sharing for the business overall. It is important to note that not all HDHPs are HSA-eligible, so be careful when choosing.
Setting Up An HSA
Creating an HSA is a simple process. Here’s a rundown of the steps.
Determine Eligibility – Determine whether your employees have HSAs through approved HDHPs supplied by the company or acquired privately. Then, select how much employees will contribute to their HSAs and whether your company would match their contributions.
Create a Cafeteria Plan – A section 125 cafeteria plan allows employees and employers to contribute to the HSA tax-free. Employees, spouses, and dependents can all participate in the plan. One of these programs might be set up by your company or a payroll agency. Employers must write a document outlining the benefits offered, contribution limitations, and participation restrictions. As well as other information required by the IRS before launching a section 125 benefits plan. Depending on the plan, they may also be required to conduct non-discrimination tests to verify that it does not favor highly compensated or specific employees. Starting a cafeteria plan can be challenging without the right understanding. Which is why many employer’s hire a third-party administrator to set up and administer their cafeteria plan.
Manage Contributions – Employees can submit HSA payments to their custodian or bank-administered account after the Section 125 plan is implemented. If you wish to contribute to your workers’ HSAs, you must submit your payments to their accounts as an employer. At the close of the fiscal year, your company must also supply your employees with the necessary tax documentation, including W-2s.
Keep in mind that annual HSA contribution restrictions must be followed by both employees and employers. For 2023, the HSA contribution limits for self-only coverage are $3,850 and $7,750 for family coverage. For 2024, the HSA contribution limits for self-only coverage will be $4,150 and $8,300 for family coverage. Those aged 55 and up are eligible for a $1,000 catch-up contribution.
Employer Tax Benefits
When it comes to tax benefits, HSAs have the unrivaled ability to benefit both employees and employers. While employees can profit from the triple tax advantage that HSAs provide. Businesses can also benefit from significant HSA tax advantages. Employers can obtain HSA tax benefits through payroll and FICA tax benefits. To maximize HSA employer tax benefits, you must first set up your cafeteria program.
With this setup, you benefit from even lower payroll taxes if you choose to contribute to your employees’ HSAs. Because your employer HSA contributions aren’t included in your employees’ income and thus aren’t subject to federal income tax, Social Security or Medicare taxes (commonly known as FICA tax). Employer HSA payments are also tax-deductible as a company expense, so you gain both on the front and back end. It’s important to know that FICA tax is a 15.3% split tax burden between the employee and the business. Company FICA tax savings can be so significant that many employers prefer to increase their company HSA contributions in order to maximize their FICA tax savings. This method can be a sensible way to increase your employees’ total compensation while keeping your bottom line in mind.
Maximize Your Benefits
Regardless of how you handle employer HSA contributions, the next step in making the most of your HSA program and maximizing employer tax benefits is to increase both the number of employees who actively participate in your HSA program and the amount of pretax money they contribute to their HSAs through payroll deduction.
As an example, a firm with 100 employees that use an HSA through its cafeteria plan can save more than $50,000 per year in FICA tax savings alone. That employer would save six figures—a significant sum—in two years. Money that would otherwise have been paid out as a tax expense. Essentially, the more employees who have HSAs and contribute to them, the lower your payroll taxes will be, as will your income and FICA tax savings.
Small Business Owner’s HSA
You may be wondering if you qualify for an HSA as a small business owner. This is determined by the nature of your business as well as your health insurance. A requirement for establishing and contributing to a small business HSA is that your health insurance needs to be an HSA-eligible HDHP. When it comes to HSA contributions for individuals, business owners face different requirements than their employees. There are extra requirements that apply depending on the type of small business you run.
Self-Employed HSA
A self-employed HSA option is fundamentally identical to choices for employers. Because an HSA is not a sort of insurance, you must have an HSA-compatible health plan as a self-employed individual. According to IRS HSA rules, you can only open an HSA if you have an HSA-eligible high-deductible health plan (HDHP). It doesn’t matter if the qualified HDHP is yours or your spouse’s; it just has to be HSA-eligible. If you are classified as a dependent on another person’s tax return, you are not eligible for a self-employed HSA option.
A self-employed HSA can be not just a way to get tax savings on healthcare spending, but also an essential component of a retirement plan. Because, in most cases, self-employed individuals and small business owners do not save as much for retirement as those who are traditionally employed. An HSA can help you save money on eligible medical expenses while also serving as a retirement account for you.
You can deduct some of your contributions on your personal income tax return if you set up an HSA and contribute to it as a sole proprietor. You can claim the deduction if you make a profit during the tax year. However, you may not contribute more to your HSA than your net self-employment income. While many employees can contribute to their HSA before taxes, as a self-employed individual, you can make HSA payments after taxes and then deduct them as a line item on your Schedule C. It requires slightly more paperwork, but it is still a simple approach to save money on qualified medical bills.
S Corp and C Corp Owner HSAs
The IRS has particular requirements for specific corporate entities based on ownership—whether held by individuals or investors. Certain corporate entities are restricted from receiving HSA funding as a result of these requirements. HSA financing limits apply if you own 2% or more of a S Corp. When it comes to employer contributions to a S Corp HSA, the company cannot provide owners with a tax-free contribution. Contributions from the S Corp firm to the owners’ HSAs are taxable income. You cannot make pretax contributions to your HSA. While S Corp HSA contributions are taxable to the owners, they are also tax deductible to the company as a compensation expense. Even after-tax HSA contributions provide a considerable tax break on eligible medical expenses.
On the employee side, or if you own less than 2% of a S Corp, the restrictions do not apply. Which means that a S Corp business can make tax-free contributions to their employees’ HSAs as long as they comply with current IRS standards on employer contributions. Because a C Corp is an entirely different legal entity, the IRS treats owners the same as employees. If you own a C Corp, you are eligible for your company’s HSA, including making pretax contributions to your HSA account. Remember that all contributions must adhere to current IRS requirements on employer HSA contributions.
LLC HSAs
If you are a single member LLC with an HSA-eligible high-deductible health plan (HDHP). Your HSA will function similarly to that of a self-employed sole owner. While you will not be able to contribute to your HSA before taxes, you will be able to contribute after-tax to your HSA and claim a line item deduction on your Schedule C. Bottom line, even as a single member LLC, having an HSA saves you money on healthcare costs. However, if you are an LLC with workers, you cannot directly participate, but offering this type of HSA cafeteria plan to your employees has numerous advantages.
Working With EZ
If you want to save money while still looking after your employees’ health and finances, offering an HDHP with an HSA is a terrific alternative. If you’re not sure where to start with HDHPs, HSAs, and cafeteria plans, EZ can help you get started and answer all of your questions along the way. We can also provide you with quick, accurate quotes and enroll you in an excellent plan – all for free! There is no hassle and no obligation. To get started with us today, simply enter your zip code in the box below. Or call 877-670-3531 to talk with a representative immediately.
In 2023, group health plans for one person cost an average of $7,739 and plans for a family cost an average of $22,463. Those numbers are expected to have up to a 7% increase in 2024. However, there are ways to lower how much you pay for health insurance. It all depends on how your premiums are calculated. If you know what factors affect your bottom line, you can take steps to lower your total premium.
For group health insurance, premiums are calculated for each worker who signs up for the plan, plus the costs of adding a spouse or children. The total price for the group plan is calculated by adding all of the individual premiums up. Most companies have their employees pay a portion of their plan cost. Then the company takes those payments and then pays the rest of the cost to the insurance company every month.
Since the risk is spread out among more people. The cost of group health insurance is generally much lower than the cost of individual plans. Once the company decides on a plan, employees can choose whether or not to sign up for coverage. However, group health plans usually need at least 70% of a company’s employees to partake, in order to be effective. Companies usually offer different levels of plans so that enrollees can choose between basic coverage or more advanced coverage with add-ons. Depending on the plan, the premiums are then split between the company and its employees. Businesses can offer further protection by allowing their employees to add their spouse or children to the plan. Although doing this typically means the plan becomes more expensive.
The Factors
Since every business is different, your premium could be higher or lower based on a number of factors that are used to figure out how much your plan will cost. It also depends heavily on the group being insured.
Fully insured with less than 50 employees – Premiums are based on how many people in your area, not just from your business, are signed up for the same plan with the same insurance company. The cost of the insurance is also based on how old the enrollees are. So, everyone the same age with the same insurance plan from the same company will pay the same price. The rates go up every year based on their age. Some of the annual renewal increase at your company will come from the fact that your workers are getting older.
Fully insured with more than 50 employees – Premiums are calculated based on the age, gender, location (zip code), and medical conditions (expected healthcare costs) of your workers and their dependents who are covered by the plan.
More than 100 employees – Groups with more than 100 workers are counted the same way as businesses with more than 50 workers. Rates are based on the age, gender, location (zip code). And medical conditions (expected healthcare costs) of your insured workers and their dependents.
Other factors are included in calculating your premiums such as:
Size of The Group
How much you pay can depend on how many people are on your group plan. This number includes both your employees who choose to join your plan and their family members who join through an employee. By spreading the health risks of a few people over a larger group, a bigger group can help you pay less for your insurance.
Health of The Group
Your rate is affected by how healthy the group as a whole is. Even though the Affordable Care Act says that insurers can’t change premiums or refuse coverage based on a person’s pre-existing conditions or general health. The American Academy of Actuaries says that the health of the group as a whole can play a role in figuring out premiums. If a risk group has a lot of people with higher expected claims, the average premiums will be higher. This can be good for your business, as the Academy also says that premiums will be lower if a risk group avoids people who are likely to make more claims. Or if it can cover the costs of people who are likely to make more claims by signing up a lot of people with lower costs.
Average Age
The Affordable Care Act (ACA) says that insurers can’t change rates based on things like gender, but they can still take age into account. Rating by age is still legal as long as the ratio of the most expensive adult age band to the least expensive adult age band doesn’t go above 3:1. This means that in a group plan, the average age of your group can affect how much you pay.
Claims History
Going to the doctor often can add up. Insurance companies make changes to your prices over time based on how many claims have been made and how much they cost. When it’s time to renew your insurance, an insurer will look at how often your group has filed claims and make changes based on that. If a few of your employees had health problems that required them to go to the doctor often or spend a lot of money. That may be represented in your updated premium cost.
Tobacco Use
The Affordable Care Act (ACA) says that group health plans can charge people who smoke up to 50% more for their health insurance rates than people who don’t smoke. This is called a “tobacco surcharge.”
Industry
Different jobs have different amounts of danger. Your insurance company may change your rates based on what your workers do for a living. For example, office workers don’t face the same health risks as people who work in factories, buildings, or offshore. So their insurance premiums may be lower than those of people in other jobs.
Coverage Amount
Group health plans are not all the same. How much you and your workers pay will depend a lot on how much coverage you get. When you have better coverage and lower out-of-pocket costs, your premiums may go up. Due to the extra covering, adding on extras like dental and vision plans can also raise your premiums.
Can My Employees Be Denied?
A person with a medical problem can’t be kicked out of a group health plan. The health insurance must either cover everyone in the group or not cover anyone. They can’t choose one or more people. A fully-funded health insurance plan cannot be turned down by a company with less than 50 workers. Carrier participation rates are based on a ratio of the number of employees who are insured to the total number of employees who are qualified. This number is different for each insurance company, so you should talk to your health insurance agent about it.
Saving on Group Health Premiums
For a small business owner, health insurance rates can be expensive, but you don’t have to accept what your company is being charged. You might be able to use certain strategies to lower your costs and make your workers healthier.
Start a Wellness Program
Since the number of claims has a direct effect on your premiums. It can pay to make sure that all of your workers are in good health. Through health education and wellness practices, a customized workplace wellness program can help people choose to live healthier lives. This can lead to a healthier, more active workforce. And lower overall rates by reducing the number of doctor visits caused by diseases that could have been prevented. It can also help attract and keep good employees because they know their employer cares about their health and safety.
Giving your workers access to a mobile doctor 24/7 is another way to cut down on the number of trips to the doctor. With telemedicine services, your employees can talk to a real doctor by phone, video chat, or online chat. This lets them get the answers they need without making an in-person visit with the doctor. This means they don’t have to pay a copay and your plan doesn’t have to pay for an extra claim.
Economy Scale
Depending on where you get your insurance, you might be able to use the “economy of scale” to your advantage. Larger businesses have more workers and more buying power. But smaller businesses don’t have as many employees to save money through economy of scale.
How To Enroll
There are countless group health plan providers and plans to choose from so choosing can be difficult. But we’re here to help! You can call EZ for a personal agent to help you sort through your plan options, get free quotes, or to simply find out more about group health insurance plans. Our experts can help you save hundreds of dollars a year by finding the best plan for your business. You can reach one of our highly trained agents at 877-670-3531, or enter your zip code in the box below for free instant quotes.
Due to recent events, unemployment in the U.S. has reached an all-time high. And because our healthcare system often ties coverage to work, there are a lot of people who could lose their access to healthcare. If you, like many employers, are worried about your workers in these uncertain times. Remember that if you have to let them go or cut their hours, they can keep their coverage for a certain amount of time. COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985) lets your workers keep the insurance coverage you provided them. Even though your employee pays the payments, there are still things you need to know and do about COBRA.
What is COBRA?
COBRA was created in 1986 as part of the larger Employee Retirement Income Security Act of 1974 (ERISA). It gives certain workers the right to pay premiums and keep their group health insurance coverage in certain situations. Before Congress passed the ERISA law, people who had health insurance through their employer lost it as soon as they left their job for any reason. After COBRA was passed, workers who left a company that offered health insurance could choose to keep their coverage temporarily. COBRA coverage is often much more expensive than what active employees pay for their group health plan because the company typically pays for some or all of the coverage.
Under COBRA you, as the employer, are no longer responsible for any health insurance costs. All medical bills can be charged directly to the ex-employee who is receiving the services. COBRA is usually offered to qualifying employees for anywhere between 18-36 months. However, COBRA eligibility and how long the coverage continues depends on certain circumstances.
Who Is Required To Offer COBRA?
First, you should find out which companies are required by federal law to offer COBRA coverage. If you run a private business with 20 or more employees and offer a group health plan, COBRA rules apply to you. Your employee handbook should have information about it. But even if you don’t think any of the above applies to you or your business, there are still a few other things to think about. COBRA adds up the hours of two or more part-time workers to make one full-time worker. So, if you have two workers who each work 20 hours. The law says that they are the same as one full-time worker.
Another thing to think about is that even if the federal government doesn’t require you to offer COBRA coverage, your state might. Some states have passed “mini-COBRA” rules that cover people who work for businesses with group health plans, but have fewer than 20 employees.
Mini-COBRA
Like federal COBRA, mini-COBRA laws require group health plans to give continuing health coverage to eligible employees who would otherwise lose coverage because of a qualifying event. One big difference is that mini-COBRA rules cover a wider range of people. Mini-COBRA rules usually cover employers with less than 20 workers, while federal COBRA only covers employers with 20 or more workers. In a few states, the number of workers is between 2 and 19. Some states require almost all workers, no matter how big or small, to follow the rules of mini-COBRA.
The length of coverage changes by state. It can be as short as 2 to 6 months or as long as 39 weeks or even forever if the employee meets certain conditions, such as becoming totally disabled while working. In some places, employees are eligible for mini-COBRA even if they were fired for being a bad employee. There is some kind of mini-COBRA law in the following 40 states:
Arkansas
California
Colorado
Connecticut
District of Columbia
Florida
Georgia
Illinois
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Minnesota
Mississippi
Missouri
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
West Virginia
Wisconsin
Wyoming
If your business is subject to mini-COBRA, you have to let eligible workers know that state law gives them the right to keep their coverage. The date for giving notice varies by state, so check your state’s laws to make sure you get the word out on time. Even though the rules for other mini-COBRA notices vary by state, they may be similar to those for federal COBRA.
When Does COBRA Apply to Group Health Plans?
The law says that a group plan is “any arrangement that an employer sets up or keeps up to provide medical care for employees or their families.” This can be done through insurance, a health maintenance organization, the employer’s assets, or some other way. Group health plans that don’t meet this definition are not covered by COBRA, but they may be subject to certain state continuation rules. COBRA does not apply to other group benefits, like life insurance or disability payments. If your business has 20 or more workers and offers group health insurance of any kind, it’s best to talk to an expert about COBRA eligibility to avoid fines or penalties.
Eligible Employees
Employees may be qualified for COBRA continuation coverage if they are enrolled in an eligible group health plan and meet certain qualifying event requirements. This could mean:
Full-time employees
Part-time employees
Spouses of eligible employees
Dependents of eligible employees
Retirees
There are limits to how long a company has to offer COBRA coverage. Even if the business has at least 20 employees, some employees won’t be able to get COBRA coverage because they didn’t choose a qualifying plan, the reason they were fired, or there were other special situations. This could mean:
Employees who are ineligible for coverage in the group plan
Workers who declined to participate in the group health coverage
Employees who are enrolled for benefits under Medicare
Employees terminated for gross misconduct
In addition to being an employee and being enrolled in a qualified group health plan, an employee must also have a qualifying event for COBRA coverage to continue. Usually, this will include something that causes the employee to lose group health benefits. For example, if an employee is fired for something other than gross misbehavior, their hours are cut, or they are laid off temporarily or permanently, they lose their benefits. Qualifying events can also include an employee’s spouse or dependents if they cause a change in status for the whole family and affect the family’s ability to keep health care. COBRA can be used to continue coverage for a spouse or child if:
The covered employee passes away
If a spouse gets divorced or legally separated
The spouse or child lost coverage because the employee qualifies for Medicare
The dependent child is no longer dependent on the employee (aging out of their parent’s coverage)
Employer Responsibilities
Plan administrators are required by law to tell people who are qualified when their status changes. In some cases, the employer is in charge of running the plan and must take care of all of these tasks. If you have workers who might be eligible for COBRA, you must do the following:
Tell the group health plan administrator within 30 days of a qualified event if a person is eligible for COBRA.
Give notice to employees who are qualified for COBRA within 44 days about their COBRA rights.
If COBRA coverage is rejected for any reason, let the people who need it know within 14 days.
If the employee chooses to keep coverage under COBRA, give them the same coverage as the plan they were on before the qualified event.
Once an employee has a qualifying event, COBRA requires group health plans to give the employee and any qualifying partner or dependents a time to decide if they want to keep their coverage under COBRA. Once the qualifying event happens, the person must have 60 days to choose to keep benefits or not. Even though everyone in a household who went through the same qualifying event has the same election period, each person’s election method is different. The employee, their partner, and any qualifying dependents can choose to get coverage or not, depending on what is best for them.
How EZ Can Help
Taking care of your workers is part of being the boss, and that means making sure they can get health care. A big part of your job is to know what their rights are and let them know about them, even after they’ve left your company. If you don’t stay on top of things like COBRA, you could face fines. We at EZ.Insure know that running a business is hard and that insurance is just one more thing to think about. We’d like to take some of that weight off your shoulders by giving you free, instant access to an informed agent. Enter your zip code in the bar below to start, or call 877-670-3531 to talk to an agent if you have questions or are looking for a new plan.
You’re not the only one who wants to know what the difference is between an ICHRA and a QSEHRA. This is one of the more common questions business owners ask when they’re trying to decide which benefits to offer their employees. Both plans are health reimbursement accounts (HRAs). They make it possible for you, the employer, to give your workers benefits that are both affordable and tailored to their needs. They each let your employees save money exclusively for their health care needs. While ICHRAs and QSEHRAs are similar in what they offer, they work in different ways. Understanding them is the first step in deciding if you’d like to offer one or the other depending on your budget and how you’d like your employee benefits to work.
What are HRAs?
Before we get into these two types of HRAs let’s look at what a standard HRA is. A HRA might be the best way for a small business to help its workers get coverage at a price they can afford. HRAs are not health insurance plans. Instead, they are a way for employers to reimburse their workers for their health care costs that is allowed by the IRS. These are not accounts like HSAs or FSAs. Instead, they are agreements (hence the name), which makes them easier to use than bank accounts.
Employers don’t have to have a pre-funded account for distributing the money, but they can if they want. They keep the money until an employee files a claim for reimbursement. So, if an employee doesn’t ask for reimbursements or doesn’t ask for the full amount, the employer gets the money. On top of that, there are no taxes on the reimbursements!
An ICHRA is a tax-free health benefit paid for by an employer that reimburses employees for their qualifying medical costs. With an ICHRA, employers give their workers a tax-free allowance each month to pay for certain medical costs. Employees then buy the health care services and things they want, like individual health insurance coverage, and the company reimburses them up to their allowance amount. Your employees can compare their options for individual coverage on the government health insurance marketplace.
There is no annual limit on how much an employer can contribute, and you can give different classes of workers different allowance amounts. There are two more things to keep in mind. First, employees and their families are only qualified for the ICHRA if they have coverage through a qualifying individual health insurance policy. If the employee or a family member who is part of the individual plan loses benefits, they can no longer get reimbursements.
Second, there are limits on the insurance tax credit in the ICHRA. Specifically, if an employee takes part in the ICHRA, they are no longer qualified for premium tax credits. Because of this, workers are free to opt out of the ICHRA as long as their allowance amount is considered “unaffordable” and wouldn’t provide minimum value under the ACA.
ICHRA Process
Here’s a step by step process for operating an ICHRA.
You set the allowance – The amount of tax-free money you give to an employee for qualified costs is set by you. There can be different amounts for each type of employee. Such as full-time employees, part time employees, seasonal workers, etc. In general, ICHRA allowances for each class of workers should be the same. You can, however, give different allowances within that employee class based on the age of the worker or the size of their family.
Employees receive healthcare – Employees pay for their own health care with their own money. They can buy the health goods and services that are right for them, such as individual health insurance.
Employees submit proof – When an employee has a medical expense, they must show you proof. Such as a receipt or a letter from their insurance company explaining the services they received.
You review – When an employee has a medical cost, they must show you proof. Like a receipt or a letter from their insurance company explaining the services they received.
You reimburse the employee – The company pays back the worker up to the amount of their allowance. Both the business and its workers do not have to pay taxes on these reimbursements, but once the employee’s allowance limit is hit, they can’t get any more reimbursements.
Who Can Offer An ICHRA?
Even though ICHRAs are available to all organizations, a company can’t give both the ICHRA and a QSEHRA. You also can’t offer both an ICHRA and a group health plan to the same group of employees. For example, you could offer full-time employees a traditional group health plan and part-time employees an ICHRA, but you couldn’t give full-time employees an option between the group health plan and the ICHRA; it’s one or the other. ICHRAs are a good choice for businesses with 50 or more workers. Under the ACA’s employer mandate, you must give at least 95% of full-time employees health insurance that meets the minimum necessary coverage. Meaning they include the “10 essential benefits”.
What Is A QSEHRA?
A qualified small employer HRA (QSEHRA) is an official health benefit that has been approved by the IRS. It lets small businesses with fewer than 50 full-time employees pay their workers tax-free for their health insurance premiums and other health-related costs. With a QSEHRA, workers don’t have to sign up for a certain type of health insurance in order to be eligible. This gives them the freedom to choose any insurance plan they want.
Payroll taxes do not have to be paid on any QSEHRA reimbursements by you or your employees. If an employee has health insurance that offers minimum essential coverage (MEC), he or she may not have to pay income tax on reimbursements. Because these reimbursements are not taxed, workers don’t have to count their QSEHRA as income at the end of the year. Unlike traditional group health insurance, the QSEHRA doesn’t have minimum employer contribution limits. This means that you can give this benefit to your employees even if you don’t have a lot of money, but there are limits on how much you can give.
Also, there are no participation requirements to offer a QSEHRA. So you don’t have to have a certain number of workers registered in the benefit in order to offer it. Employers can set monthly budget caps with a QSEHRA, which gives them full control over their costs. Once the limits have been set, they can’t be broken. Also, because a QSEHRA doesn’t need to be pre-funded, costs are only paid out when an employee has a qualifying expense. Any money that isn’t used stays with you.
Who Can Offer a QSEHRA?
For your company to be qualified for the QSEHRA benefit, it must have fewer than 50 full-time employees. According to the Affordable Care Act, if you have 50 or more full-time employees, your company is a large employer. This means you can give an individual coverage HRA (ICHRA), but not a QSEHRA. In addition to having to be a certain size, an eligible employer cannot give a QSEHRA and any other group plan at the same time. If an employer wants a QSEHRA and already has a group health insurance policy, they can cancel it and become qualified.
Which Is Better For My Business?
If you want to use an ICHRA or a QSEHRA, you need to think about a few different things. You should start by thinking about your workers and what they need. Benefits are used by many employers as a way to keep good workers and attract new ones. Your benefits should be as personalized as possible to the people on your team. An ICHRA is likely your best choice if you want a more flexible health benefit. Such as more customization with employee classes, no limits on yearly contributions, or meeting the employer requirement.
But a QSEHRA is the way to go if you want a health benefit that is less expensive than group health insurance, easy to set up and run, and works for qualified small employers with less than 50 workers. No matter which HRA you choose, you’ll be picking a customizable health benefit that will give your workers more control over their own healthcare decisions while saving your company money.
Working With EZ
HRAs are a great way for employers to help their workers’ pay for medical costs they have to pay for on their own. Employers can keep costs down while giving their workers a perk that lets them pay for their own medical care. There are different kinds of HRAs, so most businesses will be able to find one that works for them. This is what makes HRAs so special and why they are becoming more and more popular. We’re also here to help if you need help figuring out the complicated world of insurance.
If you want to learn more about your choices for group insurance, you can get in touch with us at EZ. We’ll put you in touch with a highly trained person who can help you decide if an HRA is right for you and your business. You’ll save time, never have to deal with trouble, and never have to pay for our services. EZ.Insure will put you in touch with a specialized agent for free, so let’s get started! Put your zip code into the box below to get a price right away. Call 877-670-3531 to talk to your own agent.
Employers who want to give their employees health care perks can choose between a fully insured health plan and a self-funded health plan. Even though the two approaches have a lot in common, they are also very different. Each has its own pros and cons. A fully-insured group health plan is one where the company buys the plan from an insurance company. The employer and employees pay the premiums and in exchange the insurance company takes on the risks of covering specific healthcare services. On the other hand, a self-funded plan also known as a self-insured plan is one where the health benefits are paid for by the business, not by an insurance company. In general, both fully covered and self-insured plans are governed by federal law. However, self-insured plans are not subject to state insurance regulations.
How Self-Funded Health Plans Work
Most companies hire a health benefits consultant or third-party administrator (TPA) to help them design benefits that meet the health coverage needs of their employees while staying within their budget. Most of the time, the consultant helps the company set up a plan document that explains what costs are covered, what costs aren’t covered, who can join the plan, how provider networks work with the benefits, and other important terms.
Instead of paying premiums to traditional health insurance companies. The business pays claims for services covered by the self-funded plan using the company’s own money and contributions from enrollees. Most of the time, the health benefits consultant or TPA helps the company figure out how much money should be set aside to pay for health care. It also helps decide whether the business should pay for the whole plan or just a portion of it. A self-insured business will usually set up a special trust fund to put money (from the company and the employees) aside to pay claims.
TPAs help companies figure out how much stop-loss insurance they need based on how much risk they are willing to take and, if available, their claim history. This coverage reimburses or even pays the company ahead of time when claims exceed individual or group thresholds that have already been set. Individual claims are covered by specific coverage, while claims made by a group are covered by bulk coverage. Most of the time, the employer hires a TPA to run the self-funded plan’s benefits, keep track of plan eligibility and membership, and do other administrative tasks.
Self-Funded Health Plan Requirements
Plans for groups of people who pay for their own health care are controlled by federal laws. These laws include:
The Employee Retirement Income Security Act (ERISA)
Health Insurance Portability and Accountability Act (HIPAA)
Consolidated Omnibus Budget Reconciliation Act (COBRA)
Americans with Disabilities Act (ADA)
The Age Discrimination in Employment Act
The Civil Rights Act
As well as various budget reconciliation acts. Such as the Tax Equity and Fiscal Responsibility Act (TEFRA), the Deficit Reduction Act (DEFRA), and the Economic Recovery Tax Act (ERTA).
Self-Funded Health Plan Advantages
Self-funded health insurance gives businesses a lot of benefits, such as more freedom in designing plans, the ability to make benefits fit the needs of each employee, and possible cost savings.
Cost Savings
One of the best things about self-funded health plans is the chance to save some money. By taking on the financial risk or providing health insurance, you have more say over how the money is spent. This lets you discuss healthcare costs directly and cuts out the profit margin that insurance companies usually add.
With a self-funded plan, you only pay for claims when they happen. Instead of paying annual or monthly premiums for claims that may or may not be made, you only pay for claims when they happen. In short, you don’t have to pay for things you don’t use. Also, with fully-funded plans, a big chunk of the money you pay goes to the insurance company to run the plan. In a self-funded plan, you can pay a Third Party Administrator (TPA) much less to handle the plan’s administration.
Claims Transparency
With self-funded plans, you have direct access to information about claims. This level of openness lets you look at how people use healthcare, figure out what drives costs, and take steps like care navigation tools to save money. With access to detailed claims information, you can make smart choices and make sure that your health benefits program works as well as it can.
Benefit Options
With self-funded health insurance, you can make a benefits package that fits the needs of your business and your workers. This gives you the freedom to adjust coverage choices, wellness programs, and other benefits to fit your company’s culture and the health needs of your employees.
Data Access
When you pay for your own health insurance, you have direct access to plan data, such as claims information, demographics, and trends of use. This information gives you the power to make choices based on facts, find places to improve, and use targeted interventions to improve the health and well-being of your employees as a whole.
Flexibility
Fully-funded plans give you less freedom than self-funded plans. With self-funded plans, you have the freedom to change your benefits package, choose specific coverage choices, and make programs fit the needs of your employees. You will also be able to change your health plan whenever you need to. For instance, you can add or remove participants at any time, as well as move people to or away from particular providers. This gives you the freedom to create a rewards program that works for your employees and helps their health and well-being as a whole.
Self-Funded Health Plans Disadvantages
Self-funded plans can be appealing, but it’s important to remember that they come with risks and may not be the best choice for every business.
Cost Uncertainty
Self-funded plans don’t have set costs like fully-funded plans do, which have yearly or monthly premiums that can’t be changed. Costs will depend on how many claims your employees make and how much care they need. This makes it hard to plan and budget for healthcare from year to year because you never know what will happen. In the planning phase of a self-funded plan, budgeting becomes very important. This will rely on things like the age, location, and number of dependents of the employees. The most important factor is estimating how many claims you might get.
When thinking about self-funded health insurance, it’s important to look at your employees’ numbers and health risks. Self-funding may cost more if your workers have higher health risks or have had expensive medical treatments in the past. Doing a full analysis of the health of your employees can help you decide if self-funding is a good idea.
Overage Risks
You have to pay for all eligible claims, no matter how much they cost. Unexpected claims with high costs can affect your cash flow and put a strain on your funds. As was said above, there can be a lot of uncertainty with these types of plans, so it’s important to have enough reserves and risk-mitigation methods like stop-loss insurance in place to deal with possible financial risks.
Administration
Self-funded health insurance plans require more secretarial work than fully-funded plans. You will be in charge of claims handling, managing provider contracts, making sure that rules are followed, and making sure that reports are correct. This routine work can be hard, especially for small businesses that don’t have a lot of staff or money. It’s important to think about how well you can handle these duties. One way for businesses to save time and money is to hire a Third Party Administrator, or TPA, to handle these kinds of administrative chores.
How To Manage Self-Funded Health Plan Risks
Self-funding health insurance can be dangerous for some businesses. However, there are a number of ways to deal with the risks that come with self-funded plans.
Stop-Loss Insurance
Stop-loss insurance is a very important tool for self-funded health insurance to use to control risks. It protects you from huge claims by giving you money back for claims that are more than a certain amount. Stop-loss insurance lets you limit your financial risk and protect your business from claims that cost a lot of money.
Mitigate Risks
Risk mitigation techniques can help keep costs down and deal with possible risks. Some of these strategies are healthcare navigation services to help people find high-value care, utilization review programs to track how much health care is used and find ways to save money, and disease management programs to help workers with long-term conditions.
Regulation Compliance
The Employee Retirement Income Security Act (ERISA) has rules about health insurance plans that pay for themselves. It’s important to make sure that ERISA standards are met. Such as giving participants plan documents, summary plan descriptions, and yearly reports. Some parts of the Affordable Care Act (ACA) also apply to self-funded health insurance plans. For example, they must cover basic health benefits, provide free preventive care services, and meet annual reporting requirements. Self-funded health insurance plans must follow not only federal rules, but also state rules and reporting standards. To avoid fines or legal problems, it’s important to know the laws that apply to your state and make sure you follow them.
Group Health Plans With EZ
EZ can help you find a fully paid group health insurance plan if you don’t think self-funded is right for you. Call EZ to get free prices or to find out more about group health insurance plans. Our experts can help you save hundreds of dollars a year by finding the best plan for your business. You can reach one of our highly trained agents at 877-670-3531 or by entering your zip code in the bar above. We can help you with any questions you have and get you started right away.
Maximize Your Benefits
Claims History
