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How to Keep Your Costs Low and Your Benefits High with HRAs

January 01, 2019
How to Keep Your Costs Low and Your Benefits High with HRAs

Meeting with employee about a Health Savings Account


Even if you have a small business, you need to have health coverage options for your employees. Not only is it mandated under certain ACA regulations, but many of your prospective employees will also put health coverage high on their list of requirements. If you are trying to provide high-quality benefits to your employees but you also have to be careful with your budget, consider a Health Reimbursement Arrangement, or HRA, instead of other costly options.


How does an HRA save your company money?


At the end of the day, you have to look at your company's bottom line. HRAs help you stick to the annual budget because:


You decide the annual cap of how much your company spends.


Projecting your annual profits is part of business, and it gives you more fine-tuned control over your expenses. With HRAs, you can set the maximum reimbursement amount per employee based on last year's revenue, the coming year's expected business, and the health cost trends for your specific business. Lower or raise the cap based on what makes sense for your company and your workers.


It gives employees reimbursements instead of spending money upfront.


HRAs aren't accounts. You don't have to give employees a set amount or match their contributions. Instead, your company just pays back the money your employees spend on qualifying health-related expenses.


This also means that the cap you set isn't necessarily the amount you actually spend. Most of the time, total reimbursement costs don't go anywhere near the aggregate amount of the cap multiplied by the number of participating employees; the used funds usually cap out at approximately 50% of your company's set maximum.


So reassure your employees with high enough HRA caps to set their minds at ease, but only pay for what they actually use.


Lower your tax bill.


The contributions your company makes to an HRA are tax deductible. Not only do HRAs help satisfy your company's coverage-related obligations, but they also bring in extra savings. Talk to a corporate accounting firm about the best way to make sure all of your company's contributions are accounted for without violating HIPAA or PII concerns so you can reduce the risk of fines, too.


Are HRAs good for your employees?


HRAs don't just save your company tax money. The reimbursement amounts don't count as additional income for your employees, so they also get a little tax relief. The reimbursements can go toward everything from premiums to copay amounts and even mileage costs. That can go a long way to making your interviewees turn into long-term employees.


If you want to set up an HRA for your company's employees, contact us at Foster Financial CPA. We can help you find the right type of Health Reimbursement Arrangement and get the tax benefits organized.