Health Reimbursement Arrangements
Pros & Cons of Group Plans vs. QSEHRAs
Navigating healthcare options for your small business: Group Plans vs. QSEHRAs
September 29, 2023
In employee benefits, navigating the complex healthcare landscape can be challenging, particularly for small business owners and HR professionals. As businesses strive to provide quality healthcare options for their employees while managing costs, two prevalent choices often come into play: Group Health Plans and Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). This article will explore each option's pros and cons and show how Liferaft, an affordable HRA administrator, simplifies the process.
Before we delve into the advantages and disadvantages, let's clearly understand these two options.
Group Health Plans: A Group Health Plan is an employee welfare benefit plan established or maintained by an employer, employee organization, or both that provides medical care for participants and their dependents. This care can be offered through insurance, reimbursement, or other means.
QSEHRA: A QSEHRA is a formal, IRS-approved health benefit designed for small businesses with fewer than 50 full-time equivalent employees. It allows these businesses to offer tax-free reimbursement to their employees for health insurance premiums and qualifying health expenses. Unlike traditional group health plans, QSEHRAs provide more flexibility and customization options.
Group Health Plans offer several advantages, making them a popular choice among employers. Here are some key benefits:
Traditionally, group plans were the preferred cost-effective choice for employers. However, escalating rates in the past two years have rendered them less affordable for many. Even small groups, with just one employee, can experience substantial premium hikes if they have high plan usage rates. This trend has prompted employers to explore alternative healthcare solutions.
Companies that provide group health plans often offer employees a limited selection of one or two plans. This streamlined approach can make decision-making more straightforward for employees, as they have fewer options. Moreover, the presence of colleagues who are also part of the same group plan can be valuable. Employees can turn to their peers for advice and insights, creating a supportive network for navigating complex healthcare decisions.
The availability of comprehensive coverage through group plans often varies based on your geographic location and employee group size. In certain regions and for larger groups, group plans can offer more extensive coverage, encompassing a broader range of healthcare services and benefits. However, securing access to such plans might challenge smaller employers. Not only could they be unavailable for your group size, but they might also fall beyond your budgetary constraints, making them less viable for your organization.
Group Health Plans are the prevailing choice for health insurance among Americans, representing the standard in business practice. However, businesses must recognize that despite their prevalence, these plans entail certain limitations and disadvantages warrant consideration.
Group health plans typically offer a one-size-fits-all approach. Employers select limited plans that may not cater to every employee's unique healthcare needs and preferences. This lack of customization can result in employees being underserved by the available options.
Group health plans often have predefined coverage limits and restrictions. These limitations can include restrictions on specific medical treatments, medications, or healthcare providers. Employees may find that their healthcare needs must be adequately addressed within the confines of the group plan.
Employers need at least one full-time employee to qualify for a group health plan. Most insurance providers mandate a participation rate of at least 70% to adhere to the insurer's minimum participation standards.
This participation rate requirement can present a considerable challenge for small business owners. Meeting this threshold may prove daunting, especially for businesses with only a few employees.
QSEHRAs offer several advantages that can make them an appealing choice for small businesses:
QSEHRAs allow small businesses to set their budgets for employee healthcare expenses. Employers can define the maximum reimbursement amount, providing financial predictability and control over healthcare costs.
One of the most significant advantages of QSEHRAs is the empowerment it offers to employees. Rather than imposing a single healthcare plan on all employees, QSEHRAs allow individuals to choose health policies that best align with their unique needs and preferences. This flexibility is highly valued by employees seeking personalized coverage.
Despite the complexity associated with healthcare benefits, QSEHRAs simplify the administrative process. Platforms like Liferaft streamline the setup and management of QSEHRAs, reducing administrative burdens for employers. Employers no longer need to manually manage complex wellness programs or track individual healthcare expenses.
QSEHRAs provide tax benefits for both employers and employees. Reimbursements for qualified medical expenses are tax-free, offering financial advantages to both parties. Employers can also enjoy tax deductions for their contributions to the QSEHRA.
One of the main benefits of offering a QSEHRA is that there are no participation requirements. Employers are not obligated to have a specific number of employees or meet a participation threshold to offer it.
While QSEHRAs offer substantial advantages, it's essential to be aware of their limitations:
Participation in a QSEHRA is limited to businesses with at most 50 full-time employees. This limitation may pose challenges for companies looking to grow. If your company exceeds the 50-employee threshold, the Individual Coverage Health Reimbursement Arrangement (ICHRA) offers a comparable solution without size restrictions.
The IRS establishes reimbursement limits, and the contribution limits for a QSEHRA are determined annually and subject to potential adjustments. In 2024, the maximum reimbursement limits are $6,150 for individual coverage and $12,450 for family coverage. These limits may undergo inflation-based adjustments, highlighting the importance of staying informed about the latest limitations.
In cases where you seek an HRA solution that offers greater flexibility in reimbursing employees beyond the QSEHRA limits, the Individual Coverage HRA (ICHRA) emerges as the ideal choice. The ICHRA distinguishes itself by having no size restrictions or reimbursement limits. To explore this option further, read our What is an Individual Coverage HRA blog.
Although QSEHRAs simplify administration compared to traditional group health plans, employers are still responsible for ensuring compliance with IRS regulations and managing reimbursement requests.
Liferaft is your cost-effective HRA administrator, simplifying establishing a Health Reimbursement Arrangement (HRA) for your business. Their intuitive platform eases HRA administration, spanning plan setup, claims processing, and reporting. Liferaft boasts comprehensive features, including customizable plan designs, personalized employee enrollment, and dedicated customer support. With Liferaft, businesses can streamline HRA management, save time and resources, and provide employees with a seamless and stress-free HRA experience.
The IRS mandates no specific minimum reimbursement amount, but there is a maximum reimbursement limit. The limits for 2024 are $6,150 for individual coverage and $12,450 for family coverage.
To be eligible for a QSEHRA, a business must have at most 50 full-time equivalent employees, and the employer must offer all eligible employees the QSEHRA on the same terms.
Liferaft offers making it an affordable choice for small businesses. You can find a detailed price breakdown and how Liferaft compares to its competitors here.
An eligible employer cannot simultaneously provide a QSEHRA and another group plan. Employers currently offering a group health insurance policy can become eligible for a QSEHRA by discontinuing their existing group plan.
If an employee departs mid-year and is part of the QSEHRA, they can no longer access the benefit. However, they may still be eligible to submit reimbursement requests for expenses incurred before departure.
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.
