Retirement plan sponsors are the first, and most important, line of defense in providing employees with well-managed retirement savings plans.
Taking care of employees is crucial for attracting and retaining top-tier talent. A progressive company culture, competitive salaries, and traditional benefits will always be a strong foundation for a great workplace.
But if there’s one thing the pandemic taught business owners, it’s that flexibility wins over today’s workforce—and not just when it comes to work schedules. As group insurance costs continue to rise for both employers and employees, tapping government-subsidized funds to control healthcare costs and give employees greater spending power can be a nice upgrade to your benefits package. That’s why more businesses are opting for health reimbursement arrangements (HRAs) to sweeten the employment deal for would-be workers.
In this blog post, we’ll learn more about HRAs and how they can help your organization reduce costs while providing flexible, cost-efficient healthcare to your employees.
The Cost of Employer-Sponsored Insurance Is Rising
Employer-sponsored insurance (ESI) costs have been on a steady climb. Roughly 90% of businesses polled believe employer-provided health benefits will be unsustainable in the next five years. The cost of insurance is not just increasing for employers though. According to the Agency for Healthcare Research and Quality, average employee contributions for single coverage rose more than 7% in 2021 while employee-plus-one coverage saw a 4% increase. This could put a significant strain on lower-wage workers as increased premiums chip away at their take-home pay.
How HRAs Can Help
HRAs help employers and employees lower healthcare costs by allowing employers to reimburse staff for out-of-pocket medical expenses not covered by insurance. Typically, an employer creates an unfunded HRA account for each eligible employee and reimburses them up to the account balance for substantiated medical expenses not covered by insurance, like deductibles and copays. For employers, HRA reimbursements are tax-advantaged, allowing businesses to lower their yearly tax obligations. Meanwhile, employees receive tax-free contribution amounts and reimbursements.
4 Benefits of Offering HRAs
HRAs have multiple benefits for both employers and employees. Here are some reasons why offering them might be good for your business:
1. Attract and Retain Top Talent
In today’s competitive job market, offering comprehensive benefits is a game-changer. HRAs can help you enhance your benefits package, making your business more appealing to prospects and improving employee retention.
2. Control Cost and Predictability
HRAs give business greater control over healthcare costs. By setting fixed budgets for employees, employers can plan expenses more effectively and reduce the risk of unexpected cost spikes.
3. Gain Tax Advantages
As mentioned, HRAs are tax-advantaged accounts for both employers and employees. Contributions to HRAs are tax-deductible and employees don’t pay taxes on funds used for eligible medical expenses.
4. Design Customizable Plans
Possibly the greatest strength of HRAs is flexibility. Employers have the freedom to design an HRA plan that aligns with their needs and budget. They can set the level of coverage, define eligible expenses, and determine whether leftover funds can carry over to the next plan year—and how much is allowed.
Making HRAs Work for Your Business
Implementing HRAs in your organization takes careful planning and communication. Your HRA plan should be tailored to your organization’s specific needs based on employee demographics, anticipated healthcare costs, and the level of coverage you expect to offer. You should also communicate the value of HRAs to existing employees by providing clear and concise information about how they work, what expenses qualify, and how the funds are accessed.
Benefits consultants like SWBC’s Employee Benefits Consulting Group can help navigate the intricacies of setting up an HRA plan. Our consultants can examine your existing benefits coverage, gain an understanding of your employees’ usage, and design a custom plan that is right for your business.
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