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Comparing the Small Employer HRA Option To Group Medical Plans

The new ACA (Affordable Care Act) Health Reimbursement Account (HRA) allows Employers to reimburse their employees using a pre-tax HRA to cover individual medical plan premiums and drop group medical benefits.

Before you drop your group medical coverage consider the details.

Employer Requirements

Eligible Employers have fewer than 50 employees and the QSEHRAs (Qualified Small Employer Health Reimbursement Arrangements) must be funded solely by an eligible employer with no employee salary reduction contributions allowed.

Detail #1:  As a condition of offering the QSEHRA, the employer cannot offer a group health plan to any of its employees.

Employee Requirements

Employees covered by the QSEHRA must be covered by an ACA-compliant health plan.   Generally all employees must be eligible with some exceptions (contact ELLS CPAs & Business Advisors or Integrity Advisors for more info).

Reimbursement

Qualified medical expenses incurred by an eligible employee or their family members can be reimbursed including ACA-compliant individual policy premiums. Of course, QSEHRAs may be customized to reimburse only a subset of eligible expenses, depending on the employer’s objectives for the plan.

The amount of payments and reimbursements for any year cannot exceed $4,950 for employees with single coverage and $10,000 for those with family coverage.

Detail #2:  QSEHRA has a narrow fit, it pays to consult with your broker.  

XYZ Company has 10 employees of various ages all on the group medical plan.  The owner wants to compare the $6000 average per employee premium paid annually now.  For employees the maximum annual HRA contribution is $4,950.  Some younger employees pay less than $6,000 but many will pay more.  The math in this case shows employees aged 40 and above will not be reimbursed for their full premium while younger employees would have premiums covered.  Only if the majority of employees are under 40 would this make sense.   

Detail #3:  The “Key Issues” to consider in this comparison:

  • Medical network challenges can intensify with individual plans
  • Medical plan deductibles remain high so you may need to add an Flexible Spending Account (FSA)
  • The cost to set up and maintain the QSEHRA versus keep the group medical benefits
  • Tax analysis of paying insurance premiums versus reimbursing employees
  • What to do about employees who are older due to HRA reimbursement amounts


Learn More


Contact Phil Calhoun of Integrity Advisors for information about individual medical plans and comparing group medical benefits to individual plan benefits at 714-664-0311 or phil@integrity-advisors.com.