Employee Health Insurance Options that Cost Less than Group Health Plans 

Many small employers aspire to provide group employee health insurance to support their staff and their families' well-being but find the cost out of reach. If you're in a situation where offering group health insurance is not feasible, there are alternative approaches you can explore to assist your employees in covering healthcare expenses. Here are some ways to support your employees in paying for health insurance or managing healthcare expenses:

Health Reimbursement Arrangements 

Otherwise known as an HRA, a health reimbursement arrangement is a type of employer-funded health benefit plan that reimburses employees on a tax-free basis for out-of-pocket medical expenses and, in limited cases, to pay for health insurance premiums. An HRA has a set limit of benefit that is decided by the employer to which it will contribute. The employer funds and owns the HRA arrangement. For example, the employer can decide that they will contribute $500 per employee/per year to pay for employee medical claims. Another example is that the employer can contribute a pre-determined amount ($500 for example) to help pay for healthcare premiums should the employee have coverage on the Marketplace.  

There are many types of HRAs to choose from. The two most common for small businesses are listed below:  

Individual Coverage HRA (ICHRA) 

• Most flexible of the HRAs 
• There are no minimum or maximum employee limits (meaning that you can have only one employee with an HRA or as many as you would like).  
• Employers can define different classes of employees and provide different reimbursement limits for each class. This is most common if you want to allocate more reimbursement funds for management compared to regular, front-line staff.  
• Employees must submit the proper documentation to be reimbursed. (The money for reimbursement stays with the employer if they do not submit the needed documentation) 
• Can be offered to employees with non-MEC (minimum essential coverage) plans. 

So, how does an ICHRA Work? 

1. The business owner sets the monthly reimbursement amount and designs the reimbursement structure with rates based on classes, age, family size, etc.  

2. Notify employees of their new benefit and make sure they understand how to get the most out of the HRA as well as how to submit the necessary paperwork/documentation for the reimbursement.  

3. Employees will purchase the individual health plan through the Marketplace or be enrolled in their spouse’s plan. 

4. After employees submit receipts for specific, qualified medical expenses or have set up a recurring premium payment, the business owner simply reimburses them. The funds are not subject to payroll taxes from an employer standpoint and are not considered income for the employee.  

Qualified Small Employer HRA (QSEHRA) 

• HRA for companies with fewer than 50 full-time employees. 
• Funds can cover approved expenses and healthcare premiums. 
• Tax-free only for employees covered by a major medical policy providing minimum essential coverage (MEC). 
• Employers can contribute different amounts to single employees versus those with a family, and some employees may be excluded (such as seasonal workers and part-time employees). 

The QSEHRA is administered just like the ICHRA discussed earlier. There are more stipulations around the QSEHRA than ICHRA. Employers must know the requirements of each type of HRA, and it is always best to partner with a third-party expert to help with the required documentation and compliance that surrounds HRA.  

Premium Reimbursements 

Premium reimbursements are another great way to help employees without fully offering group health insurance. Premium reimbursement is where employers reimburse a portion of their employees’ health insurance premiums when the employees purchase individual health plans through the Marketplace.  

These premium reimbursements are not simply payroll reimbursements. There are still IRA compliance measures to be followed to avoid tax implications. There are major differences between a premium reimbursement and an HRA.  

Key Differences between Premium Reimbursements and HRAs: 

• Premium reimbursements focus on subsidizing employee health insurance premiums while an HRA can cover a broader range of qualified medical expenses.  
• Premium reimbursements are generally associated with specific health insurance plans while the HRAs can be more flexible and used in combination with different insurance options.  
• Premium reimbursements are often considered taxable income to employees unless structured correctly. HRAs come with specific legal and regulatory obligations, which vary depending on the type of HRA, and they must comply with IRS guidelines. Premium reimbursements may be simpler but can also have tax implications.  

Collaboration With Local Health Providers 

There may be times when an employer is able to partner with local health providers to obtain specific benefits for their employees. Often, collaborating with providers can result in better rates for your staff and increased business for the providers. Here are some steps to help foster such collaborations:  

1. Identify local healthcare providers: find the healthcare providers in the area including hospitals, clinics, doctors’ offices, and specialists. Consider providers that have a good reputation for quality care.  

2. Establish a point of contact: Reach out to the administration or business office of these health care providers. You may want to ask about the possibility of forming a partnership for your employee’s healthcare.  

3. Negotiate preferred rates: Discuss with healthcare providers the potential for preferred rates or discounts for your employees. This can include discounted fees for services or procedures that your employees might commonly need.  

Additional Cost-Saving Measures:  

• Direct primary care - Consider contracting directly with primary care physicians or practices to provide comprehensive care at a fixed fee. DPC arrangements improve access and reduce costs for routine care. 
• Employee Health Clinics – Collaborate with healthcare providers to establish on-site or near-site health clinics. These clinics offer convenient and cost-effective primary care services to your employees. 

Finding Affordable Group Health Insurance  

While group health insurance may be financially challenging for some small businesses, we hope the strategies outlined in this blog can help you stay within budget while still supporting your employees in meeting their healthcare needs.  

Remember, if you're struggling to provide benefits to your employees, don't hesitate to schedule a call with us. We can work with you as a small employer to customize a strategy and package that works best for your unique needs. Your employees' health and well-being remain a top priority, and we're here to help you achieve that goal, making every effort to get one step better every day. 

If you would like to learn more about Whirks’ Insurance offerings, read How Much to Employee Benefits Cost for a Small Business?