If you’re self-employed, you know that one of the biggest challenges you face is finding affordable health insurance. Employer-sponsored benefits like health reimbursement arrangements (HRAs) are usually not available to you, which can make it challenging to pay for medical expenses. However, self-employed individuals can still take advantage of HRAs. Here’s what you need to know.
What is an HRA?
An HRA is a type of tax-advantaged account that employers can offer to their employees to help pay for medical expenses. The employer contributes pre-tax dollars to the HRA, which the employee can then use to pay for out-of-pocket medical expenses. HRAs are typically used to cover copays, deductibles, and coinsurance.
Can self-employed individuals use an HRA?
The good news is that self-employed individuals can still benefit from an HRA. The IRS allows self-employed individuals to set up an HRA and make contributions to it. The contributions are considered a business expense and are tax deductible. Self-employed individuals can then use the money in their HRA to pay for medical expenses.
How do I set up an HRA as a self-employed individual?
To set up an HRA as a self-employed individual, you’ll need to take the following steps:
- Determine if you’re eligible: You must be self-employed and have no full-time employees (other than a spouse) to be eligible for an HRA.
- Choose a provider: There are many HRA providers available, so you’ll want to research and compare different providers to find the best fit for you.
- Set up the plan: Work with your chosen provider to set up the HRA plan, which includes determining the amount of money you’ll contribute to the plan.
- Keep accurate records: Make sure to keep detailed records of all medical expenses paid for with your HRA funds.
How does an HRA compare to other healthcare options for self-employed individuals?
While an HRA can be a great option for self-employed individuals, there are other healthcare options to consider as well. Here are some comparisons:
HRA vs. HSA: An HSA (health savings account) is another tax-advantaged account that can be used to pay for medical expenses. However, an HSA requires you to have a high-deductible health plan (HDHP) and the contributions are limited. With an HRA, there is no HDHP requirement, and the employer (or in this case, the self-employed individual) can contribute more money.
HRA vs. Individual Health Insurance: An individual health insurance plan may be a good option for some self-employed individuals, especially if they have pre-existing conditions or need more comprehensive coverage. However, individual health insurance plans can be expensive and may not cover all medical expenses. An HRA can be used in conjunction with an individual health insurance plan to help offset costs.
In summary, while there are some restrictions and limits to be aware of, HRAs can be a great way for self-employed individuals to offset the cost of medical expenses. If you’re self-employed, an HRA can be a valuable tool to help you manage your healthcare costs. Just be sure to do your research and compare different options to find the best fit for you.