It's likely you've heard from it, but are you still wondering, “What is healthcare reimbursement?” This informative article is for you! Health care reimbursement can be obtained through health reimbursement arrangements, or HRAs, and they are a great way to help you save money and keep your employees happy by permitting these to choose their own providers and doctors. Health benefits really are a proven, effective retention strategy, so you already know it's important to your present and future employees. Here's what you need to know.
An HRA primer
HRAs are built on a series of regulations to make sure they're being offered fairly and are achieving their intended aim, which is to help employees purchase benefits tax-free. The regulations also do their best to avoid the reimbursements from being used for unfair things, like executive compensation, fraud, discrimination, money laundering, etc.
Tax Code Section 105 is the regulations which cover this type of tax-friendly tool. That’s why you’ll hear industry folks toss around the term “Section 105 HRAs.”
Here's an opportune 4-step help guide to how HRAs work!
What is healthcare reimbursement and how does it work?
The employer chooses an HRA for her company, sets a financial budget that actually works on their behalf, and then lets the employers know they can utilize it. After that, once a worker pays for a medical expense or premium, they just submit the receipt and submit for reimbursement.
We hear from many small businesses who try to help their employees by providing them an added bonus or adding to their salaries to assist with medical health insurance. However, that has the unfortunate results of triggering payroll and income tax that wind up wasting 20-40% of the bonus before an employee ever reaches use it.
For companies that help employees with health insurance by offering any adverse health stipend or by adding to employee salaries, tax-free reimbursement will normally have a huge tax advantage for employer and employee. For instance, if your 10-person company offers employees $300/mo ($3,000/mo as a whole reimbursement) by increasing salaries versus tax-free through a QSEHRA, $1,200 per month ends up going to taxes each month.
Healthcare reimbursement with HRAs
There are two kinds of health reimbursement arrangements you need to know about.
- The Qualified Small Employer HRA (QSEHRA) requires your company to become small, with less than 50 Full-time Equivalent employees, and also you can’t provide a group plan at the same time. If you meet those qualifications, you should use an HRA administration tool (like ours!) to create your QSEHRA, choose how much you'll reimburse every month (up to the contribution limits), let your employees pick the plan that actually works perfect for them, and reimburse them once they submit receipts!
- The Individual Coverage HRA (ICHRA) is almost a “super-charged” form of the QSEHRA. Rather than being limited to 50 employees, employers associated with a size can set up an ICHRA for their teams. There's also no contribution limits with this HRA. ICHRA also allows business people to customize their reimbursements across different classes of employees. While everyone should be treated fairly inside a certain class, reimbursement rates can differ between full time, part-time, seasonal, remote, etc.
- Unlike a stipend, having a medical health insurance reimbursement, employers do not have to pay payroll taxes and employees do not have to recognize tax. Additionally, reimbursements produced by the company count like a tax break.
Healthcare reimbursement the aid of Take Command
Need help sorting with the details of your healthcare reimbursement options and choosing the best one for you? We of experts are on hand to help. Just chat with us on our website, or take a look at our helpful guides on the most popular HRAs, like our ICHRA Guide and QSEHRA Guide.
