Thinking about dropping your traditional employer sponsored group plan has many benefits, from easing the administrative burden to preventing the inevitable price creep for group plans. It will save you time, money, and headaches. With customizable health reimbursement arrangements getting better and better each year, you may be ready to make the switch to these tax-advantaged options, but perhaps you’re confused as to where to start. Let's go through the key differences between group coverage and HRAs, how to make the decision on which benefits option is best for your company, and the necessary, tactical steps to take when you're ready to make the switch. We’re here to help!
Let's start with the basics before we dig in to the good stuff.
Most people think of the model of small-group insurance (sometimes referred to as “fully funded”) because it’s the model of insurance with which most people have experience. While it is the standard-bearer of employer-sponsored benefits, small-group insurance remains difficult to understand both for employers and employees alike. Costs fluctuate from year to year and plans offer little flexibility.
In general, HRA is an umbrella term for any legal arrangement between an employer and their employees to reimburse for medical expenses and/or insurance premiums on a tax-free basis. These are sometimes referred to as “401(K)-style” insurance. Under this arrangement, employees purchase their own health insurance on the open market and then submit claims to their employer to get reimbursed for the cost of their premium and if allowed, all qualified medical expenses.
QSEHRA: the qualified small employer HRA is designed for small businesses with 1-50 employees, who do not offer group coverage. This HRA includes a contribution limit on reimbursements.
ICHRA: the individual coverage HRA is basically a “super-charged” version of the QSEHRA. It works for businesses of any size and does not include contribution limits.
Key advantages of group insurance:
Key advantages of the ICHRA include:
Key advantages of the QSEHRA include:
Health reimbursement arrangements (HRAs) have been around for years now, but they keep getting better and better. So now the choice comes down to a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) or Individual Coverage Health Reimbursement Arrangement (ICHRA). There are benefits to both, so how do you decide between two good things?
Let’s compare the two by asking and then answering a good variety of questions you may have!
You get to pick your contribution amount, but there are a couple of things to keep in mind here.
You can vary the amounts you offer based on certain criteria (age, family size). ICHRA allows for greater variety across classes while QSEHRA does not.
Employees need to secure their own insurance to participate in each HRA, but the requirements are slightly different. For QSEHRA, the health insurance must meet Minimum Essential Coverage which can be insurance purchased from the marketplace, a spouse's plan, a parent's plan, medicare, tricare, or cobra. ICHRA is more limiting, the insurance must be purchased from the individual market (the metal level insurances) or Medicare Part A +B or Part C , spouse's plans don't integrate with ICHRA.
Pro-Tip: If your business currently has a group health plan and wants to change to a QSEHRA, you can cancel the group plan at anytime. You don’t have to wait until the end of the year or an enrollment period. This differs from the ICHRA, which cannot be changed during the plan year.
1. Communicate with your employees
Change of any kind can be stressful, especially for long-time employees who have enjoyed their traditional group plan for years. Explaining HRAs and their benefits will help smooth the transition. Equip your employees with as much information as possible as early as possible to understand this new model of benefits and how these changes will affect them. Most likely, they haven't heard of it before but avoiding any surprises will help them welcome their new benefit.
It's also important to remind them that once the group plan is cancelled, they'll have a 60 day Special Enrollment Period to choose a new insurance plan on the individual market. If they wait any longer, they'll have to wait until open enrollment to choose another plan, and will be left with a scarcer selection of options that meet the requirements (like faith-based plans or short term plans).
2. Read the fine print
Most group health insurance plans are unilateral contracts, meaning that you can cancel a group plan at any time during the year. Some carriers request 30 days' notice, but that's not always the case. Occasionally, there are financial penalties for canceling early.
It's always smart to engage your insurance broker or even call a customer service representative at your insurance provider to make sure you understand the necessary steps to cancel. Some will require an old-fashioned written letter or fax and many won't accept a simple email as a sufficient way to cancel, meaning you could be on the hook for next month's premium.
3. Choose an HRA
The two main types of HRA are the qualified small employer HRA and the individual coverage HRA. Take Command can help you know which one might work best for your business, but these questions might help you decide for yourself.
How big is your company? QSEHRA is capped at 50 employees; ICHRA can be used in the smallest business (your nanny!) to the largest and those in between.
How much do you want to offer? QSEHRAs have a maximum annual allowance for employees. No maximum limits with ICHRAs means employers can fully reimburse healthcare costs if they choose You can vary the amounts you offer based on certain criteria (age, family size). ICHRA allows for greater variety across classes while QSEHRA does not.
What type of insurance do your employees have? Employees need to secure their own insurance to participate in each HRA, but the requirements are slightly different. For QSEHRA, the health insurance must meet Minimum Essential Coverage which can be insurance purchased from the marketplace, a spouse's plan, a parent's plan, medicare, tricare, or cobra.
ICHRA is more limiting, the insurance must be purchased from the individual market(the metal level insurances) or Medicare Part A +B or Part C , spouse's plans don't integrate with ICHRA.
Do you want to include all of your employees or just a few? QSEHRA is available to all full time employees. Part time employees can participate but you must offer the HRA on the same terms
ICHRA classes allow for greater flexibility, however the terms must be the same within each class
Do you have a group plan in place? Do you want to keep it? If yes, QSEHRA is not for you. Employees cannot participate in both a group plan and the HRA. However, this restriction does not apply to life insurance and disability. You can offer some employees ICHRA and some a group plan, however not within the same class
Pro-Tip: If your business currently has a group health plan and wants to change to a QSEHRA, you can cancel the group plan at any time. You don’t have to wait until the end of the year or an enrollment period. This differs from the ICHRA, which cannot be changed during the plan year.
Once you’ve determined the HRA that works best for your business and employees, let Take Command get you set up! Our online QSEHRA and ICHRA Administration tools are user-friendly and we’re here to help you every step of the way.
PS: This blog has been updated with new 2025 rates!