Healthcare open enrollment season is here, so we've asked our partners at Take Command Health to offer insights on why a Healthcare Reimbursement Arrangement (QSEHRA or ICHRA) may be right for you and your employee. Here is CEO Jack Hooper's take:
In today’s busy world, a trusted nanny, private educator, maid, groundskeeper or even a driver might help you run your household like a well-oiled machine. It’s in everyone’s best interest to keep them happy—and healthy. Luckily, there’s a new way to help your household employees with health insurance, making them feel valued and ensuring they have proper coverage. Through a health reimbursement arrangement (HRA), you can make sure your household team (even if it’s just one person) is covered by reimbursing them for health insurance premiums and medical expenses on a tax-free basis.
Through the use of an HRA, your household can be considered a business and receive the same favorable tax treatment as big company group health plans with less hassle and expense. For most, providing health insurance for household employees is cost-prohibitive. For your employees, many of whom haven’t had employer help with their coverage, this will be a welcome perk. Not to mention an effective employee retention policy.
The new health benefit for household employees: What it is and how it works
HRAs are based on reimbursing your employees for health insurance rather than buying it for them. As an employer, you decide on an allowance amount and your employees will buy an individual insurance plan. Since they are by name arrangements instead of accounts, there is no pre-funding that needs to happen. You’ll only reimburse when an expense is incurred, like a monthly premium charge, a doctor’s visit copay, the cost for a prescription medication. Your employee will upload a receipt to a third-party administrator like Take Command Health, and you can reimburse them on their paycheck.
There are two types of HRAs that would work for household employees: the first, the Qualified Small Employer HRA (QSEHRA), is for employers with less than 50 full-time employees. You likely qualify for this one unless you live at Downtown Abbey. QSEHRAs have maximum limits on reimbursements ($5,300 annually for individuals and $10,700 annually for families for 2021),
but work with more insurance plan types. The newer model, called the Individual Coverage HRA (ICHRA), is for employers of any size and does not impose any limits on reimbursement. Both HRAs are set up with certain guiderails to ensure that employees are offered a helpful benefit that is affordable and doesn’t take away from their eligibility for premium tax credits.
Here are a few things to keep in mind:
- Salary deductions aren't allowed.
- The HRA must be offered fairly to all household employees.
- The employee must have their own individual health insurance in order to qualify for the arrangement with the employer and must provide appropriate documentation.
- Your household must have an EIN, or Employer Identification Number. This will essentially allow your home and household employees to be considered a business in the eyes of the IRS.
- You must withhold taxes from your household employee’s paychecks and wages must be filed on a W-2.
Reimbursing for health insurance through an HRA helps you and your employees
- Tax-advantaged: Your reimbursements to your employees are tax-free, meaning as an employer, you won’t need to pay employer tax on the amount and your employees won’t have to pay income tax.
- Budget-friendly: Choose a monthly reimbursement budget that works for you. You can make changes on an annual basis, and leftover funds stay with you, not your employee. That means if your household employee doesn’t use all of their allotted reimbursement allowance, it stays in your pocket.
- Customizable: Depending on how you design your HRA, you can choose to vary rates based by age or family size, or, in some cases, you can choose to reimburse one amount to salaried employees and another amount to hourly employees as long as it’s offered fairly.
- Personalized: Since your nanny might need Blue Cross for her doctor and your maid might prefer Aetna to cover her prescriptions, an HRA allows each of your team members to choose the best plan for them. If they sign up through the Take Command Health platform, they’ll have a personal insurance enrollment navigator to help them determine their best option.
How to get started
Take Command Health, an HRA administrator and employee enrollment platform, can make benefits for your household employees easy and affordable. We'll handle all the accounting and legal legwork of the HRA, take care of onboarding each of your household employees, and make tax-time easy and painless.
Head over to Take Command Health to see if an HRA is right for your household. HomeWork Solutions customers receive a 30% discount!
-Jack Hooper is an HRA advocate and the co-founder and CEO of health tech startup Take Command Health. He is a graduate of the Wharton School of Business and has been featured in The New York Times, BenefitsPro, Dallas Morning News, Bloomberg, Employee Benefit Adviser, and more. His motto? “Health insurance was never meant to be this complicated.”