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.
The Consolidated Omnibus Budget Reconciliation Act, widely known as 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 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 employers 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?
Business with 20 or more employees that offer a group health plan, are required to also offer COBRA insurance. Even if a company doesn’t have 20 full-time employees, they may still be required to offer COBRA coverage. This is because COBRA adds up the hours of two or more part-time workers to make one full-time worker. For example, if a company has two part-time employees who each work 20 hours per week, the law views this the same as one full-time employee.
What are Mini-COBRA Laws?
Another thing to think about is that even if a company has less than 20 full-time equivalent employees, your state might still require COBRA insurance to be offered. Some states have what are called, “mini-COBRA” rules aiming to cover employees providing health insurance but have fewer than 20 employees. Like federal COBRA, mini-COBRA laws require group health plans to provide continuing health coverage to eligible employees who would otherwise lose coverage due to a qualifying event. In a few states, the number of workers is between 2 and 19. Other states require almost all businesses, 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 a business is subject to mini-COBRA laws, they must let eligible workers know about their rights to keep 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.
Who Qualifies for COBRA Insurance?
Types of 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 include:
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, they were fired under certain circumstances, or other special situations including:
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
Qualifying Events
In addition to being an employee and being enrolled in a qualified group health plan, an employee must also experience a qualifying event to gain continued coverage. This usually includes something that causes the employee to lose their group health benefits such as:
Job loss, whether voluntary or involuntary (except in the case of gross misconduct).
Reduction in work hours, resulting in the loss of employer-sponsored health insurance
COBRA coverage can also extend to an employee’s spouse and dependents if the qualifying event affecta the family’s ability to keep their health insurance. Qualifying events affecting spouses and dependents include:
An employee’s job is lost, or hours are reduced causing his dependents and/or spouse to lose coverage
A spouse gets divorced or legally separated from the covered employee.
The covered employee passes away
The covered employee becomes eligible for Medicare, and causes dependents to lose coverage
Employer Responsibilities
Plan administrators are required by law to tell employees who qualify for COBRA, when their status changes. In some cases, the employer themself is in charge of running the plan. If an employer has employees that qualify for COBRA, they are legally responsible to 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 dependents ample time to decide if they want to keep their coverage under COBRA. More specifically, the employee must have 60 days to choose to keep benefits or not. Even though everyone in a household may have experienced the same qualifying event, they can make different decisions regarding continued coverage. For example, the employee, their partner, and any qualifying dependents can each choose whether or not they want to keep their coverage, depending on what’s best for them.
Health Insurance Alternatives to COBRA
If you experience a qualifying event, but either your employer doesn’t offer COBRA benefits, or COBRA benefits are simply too expensive for you to pay for, you have other options. Depending on your financial situation and personal preferences, you can get:
Marketplace Health Insurance: These are Affordable Care Act (ACA) plans purchased through the Health Insurance Marketplace. It’s also important to not that after losing employer coverage, you’ll qualify for what’s called a Special Enrollment Period (SEP), allowing you to sign up for a new health plan outside of the normal Open Enrollment Period.
Short-Term Health Insurance: This specialized coverage provides temporary insurance covering essential healthcare needs. A downfall of these plans is that they generally have limited benefits compared to traditional coverage.
Medicaid: Depending on your income, you could qualify for Medicaid, which is a stat-run program that offers low-cost or free health coverage.
Private Health Insurance Plans: These are standard health insurance plans purchased directly through an insurance company or broker.
How EZ Can Help
It’s crucial to understand the laws and requirements regarding COBRA, so that you know your health insurance rights after leaving a job or experiencing another qualifying event. Even though COBRA coverage is a great option for many individuals, for others, it’s either not available at all or simply unaffordable. If this is the case for you, don’t worry, you have other options, and EZ.Insure is here to help you explore all of them.
EZ.Insure makes it simple get the protection you deserve. Our user friendly-platform offers free, no-obligation quotes, a side-by-side health plan comparison tool, and 24/7 access to expert insurance agents.
To get started, and learn more about your health coverage options, simply enter your zip code in the bar below or call 209-593-6584 to talk to an agent.
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.
Individual Coverage Health Reimbursement Arrangements, or ICHRAs, have been available since January 2020, and have been growing in popularity over the past year. This is because they allow employers to save money while offering employees a way to get healthcare benefits. They are a great alternative to group health insurance, especially since the rules surrounding them are less restrictive than those surrounding traditional healthcare plans, or even those of other HRAs. For example, there are no contribution maximums and no company size restrictions on ICHRAs. Before deciding if an ICHRA is right for you, you should first weigh the pros and cons.
ICHRA Pros
All reimbursements for each employee are tax-free.
ICHRAs are a type of health reimbursement arrangement, a health benefit that differs from an HSA in that it is an arrangement, as opposed to an account. Employees don’t put money aside for their healthcare expenses; rather, you reimburse them for their medical expenses. You provide a set monthly allowance for employees’ premiums and medical expenses. ICHRAs have a lot of advantages for both you and your employees, including:
You can choose how much you want to contribute every month, and there is no minimum or maximum. Once set, you will give that amount to employees monthly; they cannot exceed that amount, which will help you budget accordingly.
Reimbursements are tax-free.
You can offer different monthly allowances to different groups of employees based on the type of job they do, how many hours they work, and even family status.
Employees use the money you offer them to find an individual healthcare plan that suits their needs. This is empowering to them, and will allow you to focus on your business instead of trying to find a group health insurance plan that fits all of your employees’ needs.
Employees need to have an individual insurance policy to participate in an ICHRA, so if you enroll and start reimbursing employees mid-year, employees will become eligible for a Special Enrollment Period to choose a major medical health insurance plan. This means that they will not have to wait until the Open Enrollment Period, November 1- December 15, to buy a health insurance plan.
ICHRA Cons
There are many positives to offering an ICHRA, but sometimes with the good comes some bad. The disadvantages of ICHRAs include:
Employees who are on their spouse’s health insurance plan cannot participate.
This type of arrangement prevents employees from being eligible for advanced premium tax credits on ACA Marketplace plans. So if an employee decides not to take part in an ICHRA that is considered “affordable,” they will not be able to receive tax credits with an ACA plan.
Employees who are on their spouse’s health insurance plan cannot participate. The only way to participate is if they purchase their own individual health insurance and get reimbursed for it through the HRA.
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For many employers, ICHRA pros outweigh the cons and can seem like a no brainer, which is why they are growing in popularity. You get to help your employees purchase health insurance plans that meet their specific needs, and you also get to save money in the process. Reimbursements are tax-free for both employees and employers, meaning that they are tax-deductible for employers, and income tax-free for employees, which will save you on employer payroll taxes. It’s a win-win situation.
If you are interested in an ICHRA, or want to explore your options for a group health insurance plan, reach out to an EZ agent in your area. Our agents are highly trained and work with the top-rated insurance companies in the country. We can assess your needs and compare plans instantly, for free. To get started simply enter your zip code in the bar above, or to speak directly with a local licensed agent, call 888-998-2027.
The coronavirus pandemic has taken a toll on many small businesses, and many are now struggling to stay afloat. In order to keep going, many small business owners had no choice but to furlough or lay off employees in order to save money. If you are one of them, you might be wondering what your former employees’ health insurance options are after you let them go. Is there still a way you can offer them group insurance? You can choose whether to pay monthly health insurance premiums on behalf of your employees, but if it is not possible due to financial constraints, your employees do have other options.
Furloughed Vs. Laid Off
Health coverage for an employee is determined by the employer’s (your) health plan. The plan indicates how many hours an active employee has to work to be eligible for health insurance. There are also rules surrounding what happens to their health insurance when they are no longer an active employee. When an employee is :
Laid off, their employment is terminated, even if you are considering the lay off temporary. After an employee is laid off, their health insurance plan ends on the last day of the month they were laid off.
Furloughed, their hours are reduced, or they might not be working at all. The difference is that they can expect to return to work again when the furlough is over, so they can continue to get health insurance coverage during the furlough period. If this is the case, the employee will either be responsible for their share of the plan’s premiums, or you, the employer, can temporarily waive employee contributions and pay all of their premium.
In general, nothing actually prevents you from paying monthly premiums on behalf of furloughed or laid-off employees. You have the option to choose to pay monthly premiums as long as you are able to. The premium will continue to be excludable from the gross income of the employees. Be aware, though, that if the plan rules do not permit an employee to be covered, then you are in danger of:
Potential loss of tax-exempt status of the plan, which means both you and your employees might owe back taxes, since pre-tax qualification would be lost.
Your insurance company denying claims for any employees that they determine are not eligible to participate in the plan.
A possible fiduciary breach under the Employee Retirement Income Security Act (ERISA) if plan assets were used to pay for benefits of non-eligible employees.
Laid-off and furloughed employees qualify for COBRA insurance.
Another option to continue coverage for your employees is the COBRA program. Both laid-off and furloughed employees qualify for a Consolidated Omnibus Budget Reconciliation Act (COBRA) plan if their group plan is terminated and you can no longer pay their premiums. COBRA can be expensive for your former employees, because if you do not contribute to their premiums, they will have to pay the full amount.
ACA Marketplace
Last but not least, losing a job is considered a qualifying life event, so a Special Enrollment Period will open up for your former or furloughed employees after they lose their job and their coverage. This means that they will have 60 days to get a health insurance plan on the ACA Marketplace. This could be a cheaper option for your employees than COBRA.
EZ Can Help
The pandemic has actually caused some changes in the way that group health insurance works. For example, some states have issued orders requiring or encouraging insurance companies to allow employers to make changes to their eligibility requirements so they can continue to offer group insurance to furloughed or laid off employees. Some states are even allowing a grace period for premium payments. To find out if your state is one of them, speak to an EZ agent, who can help find out the information for you. If you are interested in continuing to offer a group insurance plan, we can help you find a reasonable way to provide insurance to the employees that you had to let go. The times we are living in are not normal by any means, and we know it is not an easy decision to let go of your valued employees. EZ can help by offering our services for free, which includes checking all possible options, answering any questions, and comparing quotes.
To get started, simply enter your zip code in the bar above, or to speak directly with an agent, call 888-998-2027.
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