PEOs vs. HRAs vs. Group Health vs. Self-Funded: Which Makes The Most Sense For Your Business

As a small to mid-sized business, there is a variety of ways you can set up health insurance for your employees. In this article, we break down the pros and cons of each type.

March 29, 2023

Health Insurance Comparison Chart

As a small to mid-sized company, you have several options for providing health benefits to your employees. Professional Employer Organizations (PEOs), Self-Funded, Health Reimbursement Arrangements (HRAs), and Small Group Insurance are among the most common options. 

Each of these business health insurance options works a little bit differently. Review the comparison chart below for a complete overview of each option.

Download the comparison here.

PEO: Businesses hire a PEO to outsource HR functions, which include providing employees with health insurance. The PEO chosen by the employer has a limited set of health plans they will offer the company's employees. These plans are usually national group plans, which may or may not be the best plan for your employees' region.

Self-Funded: The employer takes on most or all of the cost of employee benefit claims. The employer will set aside a trust fund of corporate and employee contributions for the employer to pay for claims out-of-pocket as they are presented. 

Small Group Insurance: Health insurance that is specifically for businesses with 50 or fewer full-time employees, and to qualify, the company must have at least two employees. Typically, insurance carriers require at least 75% participation. 

HRA: A Health Reimbursement Arrangement (HRA) is a health spending account that an employer can set up to reimburse employees for out-of-pocket medical expenses. The funds in the account cover a wide range of healthcare costs, including premiums, co-pays, and dental and vision expenses. 

Liferaft’s Most Common HRA Types

Individual Coverage HRA (ICHRA): Allows employers to reimburse employees for individual health insurance premiums and qualified medical expenses. The ICHRA is available to employers of all sizes and requires employees to be covered by an individual health insurance plan or Medicare. 

Qualified Small Employer HRA(QSEHRA): A plan for small businesses with less than 50 full-time employees. The QSEHRA allows employers to reimburse employees for individual health insurance premiums and qualified medical expenses.

Standard HRA: Also known as Group Coverage HRA is a plan offered in addition to group health insurance. Employees must be enrolled in group health insurance through their company to utilize the Standard HRA. Reimbursements cannot be used for premiums, only qualified medical expenses.

Expected Benefit HRA (EBHRA): The plan allows employers to offer their employees financial assistance with dental, vision, short-term insurance, and other health-related costs that traditional group health plans may not cover. An EBHRA is a good option for employers who wants to offer employees an HRA in addition to their traditional group health plan.

Your guide to flexible & affordable benefits — download now.

Group health can be complex, restrictive, and costly. Liferaft offers something different.

Liferaft's 2023 Whitepaper on HRAs is the most comprehensive guide available, giving you what you need to determine if an HRA makes sense for your business.
You will automatically be redirected to your whitepaper download after submission.
What you get in your guide:
• What is an HRA?
• HRA Requirements & Features
• Eligible HRA Expenses
• When an HRA Makes Sense
• Different HRA Types
• States Where HRA Works Best

Frequently Asked Questions

Do all group health insurance options have a participation requirement?

No, HRAs and self-funded plans do not have a participation requirement. However, PEOs typically require 3-5 employees minimum to participate, and small group insurance carriers require at least 75% participation.

Does each option allow plan customization?

No, only self-funded and HRAs allow plan customization to fit the specific needs of the employees and companies. PEOs and small group insurance do not allow customization since employers choose a health insurance plan from the group market.

Are all options comply with COBRA continuation coverage?

All group health insurance options in this article comply with COBRA continuation coverage. In addition, for employers that choose to elect a small group insurance plan and have less than 20 employees, most states have local laws similar to COBRA, typically called mini-COBRA plans.

Do these options work if I have a distributed team?

Technically they all work with a distributed team, but an HRA and self-funded plan work better since employers can customize their plans. However, if you choose to enroll in a small group plan or work with a PEO, expect limited options for your employees to choose from because your team will have to enroll in a national group plan.

2023 Year-End Report: 
HRA Trends & Insights

Liferaft's 2023 Year-End Report gives brokers and business owners the full breakdown of HRA market challenges, employer concerns, growth opportunities, and more, to help you can stay ahead of the curve.
You will automatically be redirected to your whitepaper download after submission.
This whitepaper includes:
2023 HRA Trends  |  Top Employer Concerns  |  Trends in HRA Account Types  |  Potential Pitfalls & Challenges  |  ICHRA Enrollment Stats & Trends  |  2024 Areas of Opportunity & Growth

Book your consult with Liferaft

Our team knows the ins and outs of the health insurance marketplace and will guide you towards the solution that make the most sense for your business and your team. Come with questions! Our experts are happy to dig into the details to get you the clarity you need.

During the call, Liferaft will run a cost-benefit analysis on your company's current healthcare spending and show you different ways you can save—without sacrificing plan quality. After your consult, Liferaft will design a unique plan for your employee's health insurance, including suggested plans and accounts, plan policy documents, and the annual budget.

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