Insurance

Offering Health Benefits For The First Time With Liferaft

With only three employees, this business struggled to find a group plan that would accept them. But, with Liferaft, they quickly started offering health insurance to the team and their dependents.

September 16, 2022

Problem

With only three employees, this business struggled to find a group plan that would accept them. Affordable plans had minimum participation requirements that they didn't meet, and the plans available had astronomical rates. They assumed they couldn’t provide health insurance until their team grew. 

How a Liferaft Health Expense Account Can Help

For companies just starting to provide health benefits for their team, a Health Expense Account can be a great option. These plans allow employers to control costs, provide flexibility, and easily scale their benefits as their team grows. 

Most insurers require a certain percentage of eligible employees to participate in the healthcare plan (often 75 percent). These participation requirements often limit smaller employers to offering a single health plan. Liferaft’s Health Expense Accounts have no participation requirements and give employees the freedom to choose the best healthcare plan for their region, family, and health situation. 

Smaller businesses have limited negotiating power and can be stuck with higher premiums than if their employees purchase health insurance through the individual market (see below). As healthcare premiums continue to rise, employers stuck in a small group insurance plan don’t have control over increasing costs. Premium rate increases can present fiscal challenges for new businesses just beginning to offer benefits. 

With a Liferaft Health Expense Account, employers decide how much to reimburse their employees, what expenses to repay, and how frequently to process reimbursements. This flexibility makes it easy to set up a plan that works for your business' nuances and budget.  

The Plan

With a Liferaft Health Expense Account, the business was able to quickly start offering health insurance to the team and their dependents. First, the organization set a monthly reimbursement budget they could afford, and the Liferaft team recommended the best health insurance options for each employee based on their location, age, family circumstances, and the plan’s provider network quality. This allowed employees to confidently choose the best possible coverage for their needs and budget. 

Then as the business grew, the organization easily added new employees with just one click in Liferaft’s 100% digital platform. 

States Where You Can Save Big With a Health Savings Account

While a Liferaft Health Expense Account has many different use cases, it can be particularly effective in providing major medical insurance in states where the rates for health insurance on the state’s exchange are cheaper than group health insurance rates. 

Through the Health Expense Account, employers can reimburse the individual for their own health insurance premiums rather than paying for a group plan. The chart below shows the states that have the most significant cost differences when comparing individual versus group plans.

When moving to a Health Expense Account for your company’s major medical insurance, the Liferaft team will analyze your employee census and make a unique plan recommendation for each employee. Plan recommendations will consider each employee's specific location, age, family circumstances, and the plan’s provider network quality. This guidance will allow employees to confidently choose the best possible coverage for their needs and budget.

Limits by Business Type

When using a Liferaft Health Expense Account to reimburse employees for health insurance premiums specifically, there are some IRS limitations on what types of businesses can claim those expenses as non-taxable. Companies not eligible for this specific tax advantage through the Liferaft Health Expense Account are those with no W2 employees, S-Corporations in which an owner and spouse own more than two percent of the business, and Sole Proprietorships.

How it works

A Liferaft Health Expense Account is an excellent option for small businesses because it is affordable and can be tailored to the business's and its employees' specific needs. In addition, as the business grows, the account can easily accommodate the increased number of employees without worrying about minimum participation requirements, enrollment periods, or premium increases.

A Liferaft Health Expense Account is fully customizable based on what makes the most sense for your organization. Our team will handle all the paperwork to properly set up your account—making it easy for you to benefit from all available tax advantages. 

  • Design your benefit: Decide how much tax-free money to offer each month, which expenses should be eligible for reimbursement, or offer various benefits to different employee groups.
  • Employees purchase qualifying expenses: Allowances can be used for qualifying medical expenses and healthcare services, including prescription glasses, healthcare premiums, physical therapy, and more.
  • Employees reimbursed: Our user-friendly 100% digital experience makes it easy for you and your employees to submit a claim and get reimbursed for eligible expenses.

Frequently Asked Questions

Are Health Expense Accounts considered income?

According to the IRS, employer-issued reimbursements are not considered income and are exempt from federal income and payroll taxes. This is one of the significant tax benefits of distributing employee benefits through a Liferaft Health Expense Account. 

What happened to unused funds? Do they roll over?

One of the central values of a Liferaft Health Expense Account is flexibility, and the answer here depends on the employer’s specific policies. Some companies may have a "use it or lose it" policy regarding account funds, meaning that any funds not used by December 31st will be forfeited and cannot be carried over into the new year. Other employers allow employees to roll over a certain amount of money from one year to the next. Put plainly—it’s up to you! 

What are some disadvantages of an HRA?

Because the funds in a Liferaft Health Expense Account are employer-funded, the employer owns the money in the account even though it is for the individual to use. If the person leaves the company or their job is terminated, the account funds stay behind with their former employer.  Employers can offer a retirement account that allows former employees to utilize funds after leaving the company.

Additionally, different employers often have different rules for reimbursement, which can be a problem for employees if they switch companies. Aside from mandatory requirements like COBRA continuation, ERISA and HIPAA, plans can vary widely. 

Which employees are eligible for a Liferaft Health Expense Account?

Liferaft Health Expense Accounts can be offered to any employee, as long as each job class is treated equally. This means you can easily provide benefits to part-time and seasonal employees. However, depending on what type of expenses you plan on reimbursing, there are specific IRS requirements. After learning about your business and goals, Liferaft will make a plan recommendation for the most tax-advantaged, affordable way to structure your account. 

Interested in Getting Coverage?

If you're interested in learning more about how to save money on your business' healthcare expenses, sign up for a free 15-minute consultation with our team at Liferaft. Many of our clients have also found Liferaft's free Guide to Health Expense Accounts a comprehensive overview of how health expense accounts work and why companies are using them.

Keep Reading