HRA 105 Plans: What They Are & How They Can Benefit Your Business

Key Takeaways 

• Health Reimbursement Arrangements (HRAs) allow small business owners to provide tax-free healthcare reimbursement to employees, offering financial savings compared to traditional group health insurance plans.
• Types of HRAs: Explore different types of HRAs available, including HRA 105 (Section 105), Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) and Individual Coverage Health Reimbursement Arrangement (ICHRA).
• Flexible Coverage Options: HRAs offer flexibility in coverage, allowing reimbursement for various medical expenses, including insurance premiums, deductibles, copays, and more.
• A Section 105 Health Reimbursement Arrangement (HRA 105) serves as a popular method for business owners to deduct their health insurance premiums and medical expenses.
• HRAs are accessible to various business entities, including limited liability companies, partnerships, C-corporations, and S-corporations, offering flexibility in healthcare options for a diverse range of organizations.
• Contact AZ Health Insurance Brokers to explore whether setting up an HRA 105 plan is the right choice for your business, and to learn about available options.
  

Health reimbursement arrangements (HRAs) enable small business owners who employ other people to provide tax-free healthcare reimbursement to their employees. For small business owners who want to provide healthcare coverage to employees, an HRA plan can provide financial savings compared to traditional group health insurance plans, while adding a valuable benefit to a business. 

This guide explains:

• What an HRA 105 plan is
• Who qualifies for an HRA 105 plan
• What the potential benefits of an HRA 105 plan are

Read on to discover if setting one up for your business makes sense.

What Is an HRA 105 Plan?

An HRA 105 is named after Section 105 of the Internal Revenue Code (IRS). It allows that when employers reimburse employees (and their household members, if they qualify) for healthcare costs, the employer can deduct those contributions from their taxes. 

HRA plans are available to all types of businesses, including:

• Limited liability companies
• Partnerships
• C-corporations 
• S-corporations

HRA plan coverage is only available to employees. These plans aren’t available to self-employed professionals who are the sole employees of their businesses. 

There are different types of HRAs available. One is a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), which is limited to small businesses with fewer than 50 full-time employees that don’t offer group health insurance. Another is an Individual Coverage Health Reimbursement Arrangement (ICHRA), which gives employees the power to purchase individual-market insurance of their choice, like through AZ Health Insurance Brokers, and get reimbursed for coverage up to a certain amount. 

With HRAs, there are no reporting requirements on income tax returns for employees. HRAs can be offered with other employer health plans, such as flexible savings accounts (FSAs) and health savings accounts (HSAs). 

What Does an HRA 105 Cover?

HRA coverage depends on the type of HRA that’s offered. The employer may determine what the plan will cover, which can include only insurance premiums, only qualified medical expenses or both insurance premiums and qualified medical expenses. Medical expenses that may be eligible for reimbursement include:

• Amounts paid for health insurance premiums, including dental insurance and vision insurance
• Amounts paid for long-term healthcare coverage
• Direct primary care (DPC) arrangements and health care sharing ministry (HCSM) memberships
• Amounts that aren’t covered under another health plan
• Over-the-counter drugs and medicine
• Deductibles and copays
• Prescriptions, eye drops, flu shots, sleep aids, vaccinations, chiropractic care, dental surgery, physical therapy, medical operations and more

If this type of plan sounds more appealing than your current employee healthcare plan coverage, you can look ahead to changing your plan for the next year.

Benefits of Having an HRA 105

HRA 105 plans can offer some significant benefits, depending on the healthcare needs of your employees and what you want to offer for your business. In addition to giving employers a recruitment and employee retention advantage, as employees cite employer-covered healthcare as the top benefit they're looking for in work, the following are some additional potential benefits of having an HRA 105 plan. 

Cost savings

One of the main advantages is potential cost savings compared to offering traditional group health insurance plans. With a traditional small business group health insurance plan, you’ll pay health insurance premiums to provide your employees coverage, regardless of what type of health benefits your employees actually use. With an HRA 105, you have control of how much you’ll reimburse, which can save you money, especially when employee health costs stay low. 

That also saves you on paying the difference on yearly rate increases with health insurance premiums. Since you’re in charge of your limits, you can keep your expenses predictable each year. 

Tax savings

HRA 105 plans give employers a cost-effective way to provide health coverage without having to increase the amount they spend on payroll or income taxes. For example, if an employer can’t afford group health insurance, they might increase wages to give employees extra money for healthcare costs. With an HRA 105, they can simply reimburse employees for healthcare costs and save on taxes since the benefits are tax-free. 

Companies that satisfy tax requirements may also be able to fully deduct HRA 105 plans from taxes as a business expense. Since some HRAs can be added to group health insurance, as well, they provide employers with extra health coverage options that can meet the needs of their unique workforce.

Healthcare Choice Control

HRAs plans give employers more choice and freedom in how they design their employee health coverage. They also provide more cost control to employers, since unused funds stay with employers, instead of being paid as premiums in a group plan. 

They also provide flexibility to employees, who are able to choose the healthcare coverage they want and get reimbursed for it, instead of being restricted to the provider their employer offers.

Set Up an HRA 105 to Save

If you’re interested in setting up an HRA for your employees, contact AZ Health Insurance Brokers. We can help you understand:

• Whether an HRA 105 plan makes sense for your business
• What type of HRA 105 plan would be best for your employees and your business
• If you should use an HRA 105 plan with another type of healthcare coverage for your business

Healthcare coverage matters to workers today. It can be the difference between attracting and retaining top talent for your business, or losing someone to your competitor. 

Call us at 602.617.4107, email quotes@azhealthinsurancebrokers.com or contact us online to learn about all your options.

Business Insurance FAQs

Got a question? We’re here to help.