With the cost of employee benefits rising, smaller employers can struggle to offer meaningful benefits packages. SMBs have less bargaining power with health insurers and often lack a dedicated HR professional to manage employee benefit packages. As a result, only 39% of organizations with 3-9 employees and 67% of organizations with 10-199 workers offer health benefits, according to data from the Kaiser Family Foundation.
On top of increasing premiums and deductibles for both businesses and employees, group health plans often fail to acknowledge the individual. Traditional employee benefits aren't entirely inclusive and leave little flexibility or personalization for employees' unique needs. The Kaiser Family Foundation also reports that 75% of employers with fewer than 200 employees only offer one health plan. Yet, factors such as gender, age, preferred health care provider, and location all influence what benefits an employee values.
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When an employer selects the group insurance plan, employees have no say in important aspects such as the network they will be part of, the deductible they must meet, or the premium they must pay. Some employees even require supplemental health insurance to compensate for coverage gaps not included in their company's plan, making the overall health benefit less comprehensive. A PeopleKeep survey found that 65% of employees said they value being able to choose their own benefits, but only 36% feel they have a say at their current company.
Fortunately, there are alternative health benefit options specifically designed for small businesses and their employees.
Health Reimbursement Arrangements
A Health Reimbursement Arrangement is an employer-funded health benefit that allows tax-free reimbursement to employees for individual health insurance premiums and over 200 out-of-pocket medical expenses such as co-pays and prescriptions. HRAs are gaining traction with employers seeking a flexible and cost-effective health benefit. In contrast to group health insurance policies, which are employer-selected, HRAs enable employees to select their own individual health insurance policies from the Health Insurance Marketplace and be reimbursed for the cost of that coverage. This personalized approach encourages employees to be stewards of their own health and empowers them to choose the insurer and primary care provider that best suits their needs.
Two common types of HRAs are the qualified small employer HRA (QSEHRA), applicable to employers with fewer than 50 full-time employees (FTEs), and the individual coverage HRA (ICHRA), available for employers of all sizes. QSEHRAs must be offered to all full-time employees, have annual contribution limits, and can be coordinated with premium tax credits, while ICHRAs allow employers to design their benefit around certain types of employee classes (such as full-time salaried and full-time hourly workers) and have no contribution limit.
Data shows that companies that offer QSEHRAs commit to higher allowances and expanding offerings for their employees over time. The 2023 QSEHRA Annual Report by PeopleKeep found that the average monthly allowance provided by employers offering QSHERAs has increased by almost 40% in the last four years, underscoring the growth and viability of the health benefit.
When Ximplifi, an accounting software provider, began to hire employees from multiple states across the U.S., they realized they needed a health benefit to recruit and retain potential employees. As a smaller remote-work company, traditional group health insurance was too expensive and complicated to implement across several states.
Since offering a QSEHRA, Ximplifi has saved $67,000 compared to what they would have spent on traditional group health insurance. The company has grown rapidly, and an attractive employee benefits package has helped recruit new talent.
Health stipends
A health stipend is an allowance given by an employer to help employees pay for individual health insurance plans and other health-related out-of-pocket expenses. It is typically added to employees' paychecks as taxable income either monthly, quarterly, or annually. Since stipends are not formal benefits, employees can use the allowance as they see fit, and legally, employers cannot require proof that they use it for health or medical-related expenses. Additionally, stipends do not satisfy the ACA's employer mandate for Applicable Large Employers (ALEs).
Deb Rotman, director of operations at the grassroots journalism organization Hacks/Hackers, recounts their experience utilizing employee health stipends to upgrade their benefits package. "We created a bespoke benefit solution by offering a QSEHRA and a health stipend," said Rotman. "The combination helped maximize the health care-related support we provide our team."
Integrated HRA
An undeniable advantage of group health benefits is that employees are familiar with them. If you're not ready to part ways with your group health plan but want to enhance or supplement that existing benefit, the integrated HRA, also known as a Group Coverage HRA (GCHRA), is a good option. It's a tax-free reimbursement benefit available to employers of all sizes, designed to integrate seamlessly with group health insurance.
Through a GCHRA, employers can reimburse employees for deductibles, coinsurance, copayments, and other qualified medical expenses. However, insurance premiums cannot be reimbursed through this arrangement.
Businesses often opt for a high deductible health plan (HDHP) combined with an integrated HRA to save on health benefit costs. Similar to an ICHRA, GCHRAs have no limit on employer allowance contributions, allowing for more flexibility. Employers can customize the benefit's deductibles, cost-sharing, explanation of benefits, and employee classes. Unlike an HSA account, the employer only contributes to the benefit when the employee has incurred a medical expense.
When SMBs get priced out of traditional group health insurance, they are finding ways around the status quo. Adoption of HRAs and health stipends is projected to increase as even large companies struggle to keep up — 87% of large employers anticipate that group health insurance expenses will become unsustainable within the next decade, according to Kaiser research.
Through innovative alternatives that place health care purchasing power in the hands of employees, companies can provide cost-controlled benefits that are competitive and more tailored than one-size-fits-all options.
Victoria Glickman Hodgkins is the CEO at PeopleKeep, a provider of award-winning health reimbursement arrangement (HRA) and wellness stipend administration software for small to medium organizations.
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