New HRA regulations will allow small businesses to fund employee premiums in the individual health insurance market. The new version of the HRA (health reimbursement arrangement) will disrupt traditional group coverage by letting employees pick their plans.
Individual Coverage HRA
It’s called the individual coverage HRA (ICHRA). This new rule is set to go into effect January 2020. It will cover premiums and other expenses like dental and vision.
Small Business Trends spoke with Take Command Health CEO, Jack Hooper, on what it all means for small businesses and freelancers.
What’s Changed
He explained what was different about the new arrangement.
“American health insurance has always been tied to the employer making it hard for freelancers and small businesses,” he said.
Before the boss usually chose a small group plan and everyone got a version of it. Leave the employer, lose the coverage. Now these same folks will offer money in a pool that individual employees use to buy a plan that suits them.
“It’s a big change,” Hooper says. “We call it a change from defined benefit to defined contribution.”
A Lighter Healthcare Admin Burden
Group health plans have high administrative costs. That’s one of the reasons that small businesses can’t compete with larger firms for talent.
These ICHRAs lessen the need for small businesses to have big budgets for administering the plans.
“This takes the burden off the business of having to manage this,” Hooper says. “They can also supply great options for their employees to go out and buy the plans they want.”
Three Requirements for Small Businesses
Small businesses don’t get off the administrative hook completely. There are three requirements that go with these ICHRAs.
“One is a set of documents that will describe how it works,” Hooper says. “Then there’s a compliance component where SMBs need to verify employees are maintaining individual coverage.”
The third piece is annual reporting that needs to be done. The latest technology greases the wheels even more according to Hooper.
“None of this is particularly tricky. But that’s where having a software solution can make it really easy for the small businesses.”
The Money Is Tax-Free
Before this change, group healthcare was cumbersome. In fact, some employers bumped their employees’ salaries rather than wrangle a plan. That left the small business and the employee paying extra taxes on the money. Hooper explains:
“We estimated between eight and 10% of small businesses in the US were doing this.”
With the ICHRA the money is tax free.
Freelancers Can Get Coverage
Another advantage is the scope is bigger. More and different types of employees are covered here. This is important for seasonal, part-time and freelance workers. In short, if you’re working in the Gig Economy, this could be your way to get coverage.
What’s more there is portability.
Here’s how that works. Freelancers might lose the contribution the company makes when they move on, but not the coverage. It’s something that all contractors should be considering when negotiating contracts.
Small businesses can attract talent by offering ICHRAs too.
There’s No Minimum Enrollment Requirements
Before these changes come into effect, there are group plans requiring minimum enrollment numbers.
“People coming in and out would cause the whole plan to collapse,” Hooper says. “With the ICHRAs, you can choose to join for just a couple of months and leave.”
There’s no impact on the employees that stay and their coverage.
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