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Best HRA for your restaurant — affordable health plan

In a tight labor market, the right employee benefit package can make or break a winning team. This is especially true for the food and beverage industry, where restaurant owners can experience annual turnover rates as high as 70%. But how can a business where profit margins are slim afford to add a health coverage option? By reimbursing health insurance premiums instead of sponsoring a group health plan. Let’s take a look at the two most likely candidates for the best HRA for your restaurant.

When a company wants to do well, hiring and keeping the best employees is vital to its success. This is especially true in the hospitality industry, where competent and complimentary staff can quickly impact a customer’s experience and the chance they will return, or recommend your establishment to others.

As recently as 2018, restaurants saw an overall annual turnover rate of 70%. While this is the average, it is costly; but it doesn’t have to be that way. Restaurants can cultivate staff loyalty that results in average employee tenures of a decade or more.

Most that do this have one thing in common – a health plan. Currently, less than a third of restaurants offer this perk, but doing so can make all the difference.

But how can a restaurant with its slim profit margins afford to offer high-cost health insurance to employees?

Fortunately, the traditional employer-sponsored group health plan is no longer the only option. Today, instead of paying for a traditional group health plan outright, employers can now use a Health Reimbursement Arrangement (HRA) to reimburse employees for lower-cost health policies purchased on the individual market.

The restaurant owner sets the amount and terms of the HRA benefit and all HRA benefits are tax-free to employees.

Plan Document Required

All that is required to establish the best HRA for your restaurant is a written plan document that details the benefits of the plan; explains rights and responsibilities of the participants and sponsor; identifies the sponsor (employer), its administrator (if different than employer), and its agent(s); and, includes relevant IRS, ACA, and DOL disclosures.

A Core HRA plan document package provides everything an employer needs to meet this obligation to disclose in one convenient package for just $199.

QSEHRA: Affordable health plan for < 50 employees

With a Qualified Small Employer HRA (QSEHRA), employers reimburse employees for health insurance premiums and other medical expenses.  The employer determines the amount of the benefit (up to annual limits set by the IRS) and sets rules relating to year-end rollovers, if the plan reimburses all medical expenses or premiums only, and other terms.

Employee eligibility

The company determines employee eligibility based on employee classification group criteria that may include hours worked (full-time vs. part-time or seasonal), length of employment (for example, a waiting period), and so forth (defined by HIPAA, ERISA, and DOL nondiscrimination rulings).

Employees eligible to participate in the plan must then be covered by an individual or group health plan to be eligible for reimbursements. This coverage may be purchased on the open market or an exchange, and the employer will reimburse the premium to the employee.

Also, the QSEHRA allows employees to qualify for reimbursements with coverage through a spouse’s or parent’s group health plan, and to retain eligibility for a premium tax credit.

Employer Eligibility

Generally, an employer with fewer than 50 full-time employees that does not offer a group health plan to any group of employees is eligible to provide a QSEHRA.

Benefit Amount

The employer determines the amount available to employees and their dependents through an HRA. For a QSE-HRA, that amount is up to $5,150 for employees with self-only coverage and $10,450 for those with family coverage ($430 and $871 monthly, respectively).

Administration Costs

QSEHRA administration can be done in-house at minimal cost or outsourced for a low monthly fee. The Core HRA package for QSEHRAs includes an employer’s administrative guide.

Substantiation of MEC Coverage

In order to receive QSEHRA reimbursements for premiums or other medical expenses, the participant and eligible dependents must be covered by a health insurance policy that meets the standards of minimum essential coverage.

Substantiation of coverage is required before the start of each plan year as well as with every request for reimbursement throughout the year.

IMPORTANT: Employees and dependents for whom MEC cannot be substantiated are not eligible to participate in the QSEHRA.

A list of eligible coverage may be found here.

Coverage under a spouse’s or parent’s group health plan is acceptable.

Additional Coverage

Setting up the best HRA for your restaurant may include a Section 125 Plan that allows employees to pay their balance of MEC health insurance premiums with pre-tax salary deductions. For more tax savings, a QSEHRA can coordinate with a Health Savings Account (HSA) when the HRA is designed to pay premiums only.

Premium Tax Credit

QSEHRA participants eligible for a premium tax credit under the Affordable Care Act may retain the amount of the credit over the amount provided in the QSEHRA.

ICHRA: Individual Coverage for 2 or more employees

For larger establishments, the Individual Coverage HRA reimburses individual health insurance coverage premiums and related medical expenses. Even if you meet the small employer definition (< 50), the ICHRA may be the best HRA for your restaurant because it offers the ultimate in flexibility and control over employee classification groups and terms.

Employee eligibility

The company determines employee eligibility based on employee classification group criteria that may include hours worked (full-time vs. part-time or seasonal), length of employment (for example, a waiting period), and so forth (defined by HIPAA, ERISA, and DOL nondiscrimination rulings). /employee-classification-groups-nondiscrimination-rules/

Employees eligible to participate in the plan must then be covered by an individual coverage health plan to be eligible for reimbursements. This coverage may be purchased on the open market or an exchange, and the employer will reimburse the premium to the employee.

However, the ICHRA is not compatible with coverage through any group health plan, including that of a spouse or parent.

Employer Eligibility

Generally, an employer with any number of employees that does not offer a traditional group health plan to the same group of employees is eligible to provide an ICHRA.

Benefit Amount

The employer may set any benefit amount for the ICHRA. There is no minimum or maximum limit set.

Administration Costs

ICHRA administration can be in-house or outsourced. All Core HRA plan document packages an employer’s administrative guide.

Substantiation of Individual Coverage

In order to receive ICHRA reimbursements for premiums or other medical expenses, the participant and eligible dependents must be covered by an individual coverage health insurance policy that is purchased on the open market or through an exchange.

Medicare coverage can be integrated with an ICHRA for premium and medical expense reimbursement.

The ICHRA can only be integrated with individual coverage health insurance; no group coverage of any kind is allowed.

Substantiation of coverage is required before the start of each plan year as well as with every request for reimbursement throughout the year.

IMPORTANT: Employees and dependents for whom individual health coverage cannot be substantiated are not eligible to participate in the ICHRA.

 Additional Coverage

To make the ICHRA the absolute best HRA for your restaurant, consider adding a Section 125 Plan. First, it allows employees to pay any balance of their individual health coverage insurance premium with pre-tax salary deductions.

It also allows the employer to enjoy greater tax savings through an HSA and/or Health FSA.

An ICHRA is compatible with an HSA when the ICHRA is designed to pay premiums only. When set to pay premiums as well as other medical expenses, the plan sponsor/administrator must take care to adhere to HDHP/HSA rules against reimbursing medical expenses before the HDHP deductible is met.

Employers offering an ICHRA may also provide a limited purpose Health FSA to employees.

Premium Tax Credit

Employees eligible for the premium tax credit will lose that eligibility once offered an ICHRA; however, employers must allow an annual chance for employees to opt-out of the ICHRA and to possibly regain premium tax credit eligibility.

Quick Comparison: QSEHRA and ICHRA

Features	QSEHRA	ICHRA
No. of full-time employees	< 50	2+
Maximum benefit amount for self-only coverage	$5,150*	n/a
Maximum benefit amount for family coverage	$10,450*	n/a
Set terms by employee groups	Yes	Yes
Can offer GHP to other active employees	No	Yes
Requires substantiation of MEC	Yes	No
Requires substantiation of individual coverage	No	Yes
Integrates with Medicare	Yes	Yes
Can integrate with spouse or parent group coverage	Yes	No
Employees can receive ACA premium tax credit	Yes	No
Employees can opt out once annually	No	Yes
Allows employees to contribute	No	No
Reimbursements are tax-free to employees	Yes	Yes

*Subject to annual inflation adjustment.