We often discuss the many benefits of ICHRAs for small, medium, and large businesses. But how does coverage work if you’re a solopreneur who’s self-employed, with no or just a few employees on the payroll? Would you have the same advantages and cost benefits? How can you explore your options and eligibility requirements? Here’s everything self-employed entrepreneurs need to know to better understand how Health Reimbursement Arrangement (HRA) variations work.
Self-Employed HRA Options
In the HRA model, the employer instead reimburses participating staff for exact costs like medical expenses, prescriptions, and even individual insurance premiums in a pre-tax sense. It’s always considered a best practice to consult with your licensed accountant or tax professional for guidance. However, here are the eligibility outlines based on company entity structures.
C-Corp: Under this company structure, the business owner and any dependents can tap into an HRA.
S-Corp: Under this company structure, and because the owner is already protected with certain profit and loss taxations, and because the owner owns 2% and isn’t an employee, owners are not eligible for HRA participation.
Partnership: Under this company structure, where the owning partners are directly taxed, they are not eligible for an HRA. There is a caveat – should the owners’ spouses be W2 employees, not partners, an HRA can be set up for those employee-level spouses.
Sole Proprietorship: Under this company structure, where the business and the owner are not incorporated, nor an employee, the owner is not eligible for an HRA.
Not all self-employed entities will be eligible for an HRA solution. The IRS makes these determinations based on how your business is set up.
Understanding QSEHRA
For those self-employed entities that do qualify for an HRA model, the Qualified Small Employer Health Reimbursement Arrangement (QSHERA)is a great opportunity for putting yourself in the same position as a group health plan, but with fewer restrictions, requirements, costs, and hassles. Under QSEHRA, the self-employed can set aside a fixed monthly allocation of funds for participating employee reimbursements.
As enrolled employees encounter medical expenses or monthly premiums for ACA Marketplace coverage at the individual level, they can submit reimbursement requests to draw off this set monthly amount of money. And these are all tax-free, meaning self-employed employers can take full advantage of offering a health benefit that doesn’t break the bank nor come with all the tax hassles and maintenance of a traditional group health plan.
Because a self-employed entity can set the budget requirements upfront, there is no surprise fee or overages you might find with a small employer group health plan. And you’d only be reimbursing for actual out-of-pocket expenses.
QSEHRA isn’t for everyone, though. There are maximum contribution limits to consider based on how you might set up your model. And there are company size limits that apply for eligibility.
Understanding ICHRA
The Individual Coverage Health Reimbursement Arrangement (ICHRA) is typically the more popular HRA variation among the self-employed. It offers all the same range of control, affordability, and flexibility of a QSEHRA. However, ICHRA does not have contribution or company size limits that factor into eligibility.
ICHRA works with a variety of employee types. Anyone who’s self-employed knows the benefits of hiring part-time, seasonal, and temporary workers.
As your self-employed entity continues to grow, you might decide to explore a hybrid model of health insurance benefits with both ICHRA and a traditional group plan. ICHRA allows for this type of integration, so long as you aren’t offering or applying both models to the same employees.
For example, you might decide to offer a group health plan to salaried or full-time staff. You could do so for them and still manage a more affordable ICHRA model to provide benefits to your seasonal or part-time workforce separately.
For anyone who is currently self-employed, an ICHRA is definitely a viable solution to providing health insurance-related benefits. Regardless of your company size, employee type, or given budget, it’s a far more efficient option for those who are eligible to offer one. And if you need help learning more about the ICHRA, let W3LL help! We can shed light on eligibility questions, how to opt-in, and launching an ICHRA with your teams. Connect with our ICHRA experts today!
Pete English
With nearly two decades in health insurance, Pete English’s diverse experience makes him uniquely qualified to help health plans and brokers leverage innovative technology in partnership with W3LL. From growing sales staff by 126% over 4 years at a large health plan, to building his own health insurance brokerage firm with over $7.2MM in annualized premium, Pete has done it all.
