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What is an HRA and should a startup consider it for employee health benefits?

Vanessa Kruze, CPA, is a leading expert in startup taxes and tax compliance. Her team at Kruze Consulting has filed thousands of tax returns for companies that have raised billions in VC funding, and her work has been diligenced by leading VCs, attorneys, and M&A teams at the largest technology companies.
Vanessa Kruze, a seasoned CPA, leverages her extensive experience from Deloitte Tax and as a controller of a $20 million startup to lead Kruze Consulting in offering specialized bookkeeping services for startups. Her firm, noted for its inclusion on the Inc 5000 list, combines technology-driven solutions with precise financial expertise to deliver scalable and efficient bookkeeping tailored for startup needs across the United States.

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We’ve recently started to see startups offer an alternative form of healthcare benefits - HRAs. An HRA, or Health Reimbursement Arrangement, is an IRS-approved employer-funded health benefit account that can be used to reimburse employees for qualified medical expenses. Importantly, employers can choose to offer an HRA as an alternative to traditional group health insurance, or as a supplemental benefit to group health insurance.

The biggest reason we’ve seen clients adopting this form of health insurance is that it’s cheaper than traditional benefits, which, honestly, are getting out of hand from an expense standpoint. 

How Does It Work? 

In a typical Health Reimbursement Arrangement:

  • Funding: Employers set aside a certain amount of money per employee to cover eligible healthcare expenses.
  • Claims: Employees pay for medical services out-of-pocket and then submit receipts or invoices to get reimbursed; this can typically happen through the benefits platform.
  • Reimbursement: Upon review, the employer reimburses the employee tax-free up to the allocated amount.
  • Reporting for the Employer: The platform also provides the information back to the startup’s accounting system to account for the expenses, connects to payroll, and to be ready to take advantage of the tax advantages of offering this benefit.

We’ve only seen startups offer this through a platform, which brings up the next question:

What is an HRA platform fee?

An HRA platform fee is a health benefits related expense. These platform fees are charged by the companies that provide the software and services that employers need to administer their Health Reimbursement Arrangement plans. 

These fees can cover a variety of expenses, such as:

  • Setting up and maintaining the HRA plan
  • Processing employee claims
  • Generating reports
  • Providing compliance support

The cost of HRA platform fees varies depending on the size and complexity of the HRA plan, as well as the features and services offered by the HRA administrator. However, HRA platform fees are typically much lower than the cost of traditional group health insurance premiums.

Here are some of the benefits of using an HRA platform

  • Convenience: These platforms can save employers a lot of time and hassle by automating many of the tasks involved in administering an HRA plan.
  • Compliance: The platforms can help employers ensure that their plans are in compliance with all applicable laws and regulations, and that both the employer and employees get the tax advantages due to them.
  • Flexibility: HRA platforms offer a variety of features and services that employers can choose from to create an HRA plan that meets their specific needs.

Key Takeaways: Is an Employer-Funded Health Benefit Account Right for Your Startup?

  • Cost-Benefit Analysis: Weigh the operational costs, including platform fees, against the likely savings when compared to conventional healthcare plans.
  • Expert Consultation: Consult tax and legal experts to understand the full ramifications and benefits of adopting such a plan, and make sure that if you use a platform that it connects to your existing systems.
  • Open Dialogue: Talk with your team to see if this is a benefit that they would appreciate. Clearly communicate the changes to your team and provide resources for them to understand how it will impact their healthcare choices.

Remember, this alternative healthcare solution isn’t a one-size-fits-all answer, but it can offer financial predictability and flexibility that can be particularly beneficial for startups.




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