What you need to know about the latest changes to Association Health Plans, Association Retirement Plans, and HRAs.
Small business is the backbone of the U.S. economy, with over six million businesses representing 60 million employees. Yet small businesses have the most challenging path to providing benefits for their employees. High costs, inefficient management systems, and government regulation have all presented obstacles that have left the majority of U.S. small business workers without employer-sponsored benefits.
In fact, Kaiser Family Foundation found that only 47% of small employers provide any medical benefits, compared to 91% of mid-sized employers. When it comes to retirement, the numbers are even worse – fewer than 20% of small employers offer any retirement savings. And we know from experience that if you don’t save through work, you probably don’t save at all.
But good news is on the way for small business. This year there have been a trifecta of government announcements regarding benefits programs designed specifically to help small business. They essentially loosen the regulatory reins on existing, proven programs to expand the definition of small businesses that can tap the power of collective buying, or reimburse employee spending. The beauty of these changes is that they are politically agnostic as Democrats, Republicans and Independents alike own and claim small businesses in their constituencies.
Association Health Plans
In June, the first horse in the trifecta crossed the line when the Administration announced the loosening of restrictions surrounding Association Health Plans, so that more businesses can aggregate for the purpose of purchasing collective medical and other benefits. While these collective sourcing programs have been around since the 1970s, they were cumbersome and expensive to create and manage for all but the largest companies. Now, under the new rules, millions more businesses can qualify for AHPs to ease the cost of, and increase access to, health benefits for their employees.
These redefined rules allow companies to band together by industry or geography in entirely new ways. Associations, Franchisees, and Chambers of Commerce around the country are aggressively moving to deploy AHPs to help their member companies.
AHPs work! For example: one Decisely franchise system found that 35% of new members in the AHP had never offered benefits before, bringing more employer benefits to more small companies. Member companies that had previously offered benefits without the advantage of collective purchasing reduced costs an average of 23%, over $1,100 per employee. And these are all ACA compliant insurance coverages, with pre-existing condition coverage included.
Association Retirement Plans
The second finisher in the race is the recently introduced Association Retirement Plan (ARP). Modeled after AHPs, these new plans modify regulations to increase opportunities for collective sourcing of 401(k) plans across small businesses.
Previously known as “multiple employer plans,” these programs dramatically cut the cost to employers offering a 401(k) – often by more than 50% – materially reducing employee borne management fees. They have been in existence for years. In fact, my own company moved to such a program reducing both my Employer cost (by 50%) and dramatic reduction of employee management fees. Through the magic of compounding interest and reduced transaction cost, our employees are projected to increase their lifetime 401(k) savings by over $98,000 per person. That’s real money.
Now, proposed guidelines would make it easier and faster for even more small businesses to launch the newly named ARPs. These small businesses can band together as a group to collectively source more cost-effective 401(k) solutions through an ARP for its members. The plans have the potential to deliver employer-sponsored retirement saving options to millions of employees formerly excluded by cost and complexity from traditional 401k plans from doing so. It’s good news for the small business community and great news for workers.
Health Reimbursement Accounts
Finally, the last horse in this race is the planned expansion of Health Reimbursements Accounts (HRAs) – accounts that can be used to reimburse individual health insurance purchased by employees. This move by the Administration helps strengthen today’s Individual Health Insurance marketplace. Technically, this option already exists today under a little-known program called the Qualified Small Employer HRA (QSEHRA). This program allows small businesses with less than 50 lives to fund a tax deductible HRA for employees, so those employees may be reimbursed for their medical premiums out of and up to the funded HRA balance.
Beginning in 2020, all HRAs will now have that same capability. This is perfect for the smallest of businesses, including start-ups, and for Associations or Franchises not quite ready for the collective benefits sourcing of an Association Health Plan.
Together, these three changes help close the gaps in health and retirement benefits for America’s small businesses. A thriving small business community is good for the nation, and the combination of these programs helps ensure that all businesses have a chance to compete with larger corporations for a talented workforce by extending improved benefits to their workers.
Chris Duncan is the EVP & COO of Decisely, an insuretech firm specializing in small business solutions for Brokers, Associations and Franchises. He is also the former Risk Manager/Head of Security for a major national franchisee brand in the Quick Service Restaurant Industry.
Originally published at Benefits Pro on December 6, 2018.