With group health insurance rates continuing to rise, more small business owners in Colorado are turning to Health Reimbursement Arrangements (HRAs) as a way to help their employees obtain health insurance. With this type of arrangement, the business reimburses employees for the cost of their individual health insurance plans, instead of offering a group plan.

What Is an HRA?

A Health Reimbursement Arrangement (HRA) is an arrangement where an employer reimburses employees tax-free for qualified medical expenses, including health insurance premiums. HRAs are also known as Section 105 plans, named after the section in the U.S. Tax Code that governs them.

Group health insurance in Colorado is "guaranteed issue," meaning that the insurance companies must accept any applicant, regardless of pre-existing health conditions. As a result, group insurance premiums are about twice as expensive as individual plans, and approximately 40% of small business owners can no longer afford to offer health insurance to their employees.

Companies cannot purchase individual health insurance for their employees, but if they have an HRA set up they can reimburse them for their medical expenses, including the cost of health insurance. The reimbursement is considered a tax-free fringe benefit to the employee, so it is a better value than simply receiving a pay increase.

Because some companies are now offering online HRA plan set up, they are also now extremely easy to set up and to manage. The employer simply provides a fixed monthly tax-free contribution to an HRA for each participant. The Health Reimbursement Arrangement then enables employees to obtain reimbursement for qualifying medical expenses, including health insurance premiums.

Your employees can then select an affordable plan customized to their own needs and budget. One great advantage to the employee is that the coverage is totally portable - if they ever leave their employer they can take the coverage with them. They do not have to worry about COBRA, or about being tied down to their job just because they need the health insurance.

These plans are primarily being adopted by small companies with employees who are all in good health. Because insurance companies are allowed to "underwrite" individual health insurance applications, someone with some pre-existing health problems could be denied coverage.

The average group health insurance premium for a family is nearly $14,000 per year. However, the average premium of an individually underwritten plan can be much less than $300 per month. So it is not surprising that as more small business owners learn how they can use an HRA to reimburse individually underwritten health insurance plans, their popularity continues to soar.


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By Wiley Long - President, ColoHealth - The state's leading independent health insurance agency specializing in Colorado health insurance plans.