How Small Companies Replace Group Health Insurance — Healthshare

How Small Companies Replace Group Health Insurance

Small business owners are really being squeezed as the cost of group health insurance continues to rise.   But, they have found an alternative that works.  With a health reimbursement arrangement (HRA), they can drop out of the group coverage market and switch to the individual health insurance market.  And that means much lower rates.

How Does Group Coverage Compare to Individual Coverage?

Companies usually buy group health insurance on a yearly basis.  Since rates are climbing, employers may spend a lot of time and money trying to compare policies versus cost in a market where rates greatly exceed that of the individual market.

With help from health care reform in the form of individual tax credits, employees may soon be in a better financial situation than employers to get the lowest cost in health insurance.

Why not cancel your group health policy and have employees get their own individual policy?  To make the switch, establish an HRA and reap tax benefits for funding employee health insurance with pre-tax money.

How Does an HRA Help?

A health reimbursement arrangement allows a small company to set up a “defined contribution plan”.  In doing so, the company can specify exactly how much they are willing to spend on health insurance premiums for their employees.  The employer reimburses the employee for their health insurance costs, as a tax-free fringe benefit.

This saves both the employer and employee payroll taxes, and puts the employee in control of their own health insurance.  Starting in 2014, individual plans will be guaranteed-issue regardless of pre-existing health problems, which will make HRAs the main way that small businesses provide health insurance benefits.

How Will Employees React to Buying Their Own Policy?

This is the year that health insurance is really changing in the individual market.  Yes, there have already been major changes, such as:

  • Lifetime coverage cannot be limited
  • Complete coverage with no out-of-pocket costs for lots of preventative care
  • Dependents under age 18 cannot be declined due to pre-existing conditions.

These changes should make your employees more comfortable switching from group to individual coverage options.  And, come October 1, individual policies will be even more like group coverage.  Here are some of the coming changes:

  • Annual coverage limits are disappearing
  • Applications for adults cannot be declined due to pre-existing health problems.
  • Those who are eligible for health insurance tax credits will have the annual cost of health insurance capped at from two percent to 9.5 percent of household income.

The other aspect you’ll want to consider is how easy setting up an HRA and managing reimbursements can be.  We’ve streamlined the process from start to finish.  You can learn more about saving with an HRA at


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