The Power of Health Stipends: A Flexible Alternative to HRAs
- Small Business Benefits
- Dec 4, 2024
- 4 min read
Updated: Feb 21
In the ever-changing landscape of employee benefits, employers are constantly seeking innovative ways to provide meaningful healthcare support while staying agile and cost-effective. One such solution gaining traction is the health stipend—a straightforward, flexible alternative to Health Reimbursement Arrangements (HRAs). Here’s why health stipends are a game-changer for employers and employees alike.
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What Are Health Stipends?
Health stipends are employer-provided funds given directly to employees to help cover medical expenses. Unlike HRAs, stipends are treated as taxable income, giving employees the freedom to use the funds as they see fit—whether for insurance premiums, out-of-pocket medical costs, or other health-related needs.
This flexibility makes stipends an attractive option, particularly for organizations with diverse workforces where one-size-fits-all benefits may not work. Working with a trusted resource like Small Business Benefits of Michigan can take the guesswork out of your business decisions.
How Health Stipends Work
Implementing a health stipend program is simple:
Set the Budget: Employers determine a fixed monthly amount to provide to employees.
Distribute Funds: The stipend is added to employees’ paychecks as taxable income.
Employee Freedom: Employees use the funds however they choose, with no restrictions or compliance requirements tied to specific expense
Because stipends are not formal health plans, they come with fewer administrative hurdles for employers. However, they do not satisfy the Affordable Care Act’s employer mandate for providing coverage, so they’re best suited for businesses not subject to that requirement.
Benefits of Health Stipends for Employers
Health stipends offer several advantages over traditional HRAs or group health insurance:
Simplicity: Stipends eliminate the complexity of managing and administering a formal health plan. Employers don’t have to worry about regulations, affordability calculations, or compliance requirements.
Cost Control: Employers set a fixed amount for stipends, making it easier to predict and manage healthcare costs.
Flexibility: Stipends work for employees across different states, insurance markets, and healthcare needs. This is especially beneficial for remote or distributed teams.
Employee Satisfaction: By providing a stipend, employers empower employees to make their own healthcare choices, which can lead to greater satisfaction and loyalty.
Benefits of Health Stipends for Employees
From the employee perspective, stipends are a welcome departure from traditional healthcare benefits:
Freedom of Choice: Employees can use the funds for any health-related expense, from purchasing Marketplace insurance to paying for wellness services or supplements.
Eligibility for Premium Tax Credits: Unlike HRAs, stipends don’t interfere with an employee’s ability to qualify for premium tax credits through the Health Insurance Marketplace. Employees can benefit from both the stipend and government subsidies.
Simple and Transparent: Employees receive the stipend as part of their paycheck, with no additional accounts or reimbursement processes to manage.
Health Stipends vs. HRAs: Key Differences
While both HRAs and stipends aim to support healthcare costs, their differences make stipends uniquely appealing in certain scenarios:
When to Consider Health Stipends
Health stipends are ideal for:
Small Businesses: For businesses with fewer than 50 employees, stipends provide a simple way to offer healthcare support without the need for formal group insurance.
Remote or Distributed Teams: Stipends accommodate employees in multiple locations with varying insurance needs.
Supplementing Existing Benefits: Employers can use stipends to enhance an existing benefits package or as a short-term solution while exploring long-term healthcare options.
Key Considerations
While health stipends offer many benefits, there are a few things to keep in mind:
Tax Implications: Stipends are considered taxable income, which may slightly reduce the take-home value for employees.
ACA Compliance: Stipends don’t fulfill the ACA’s requirements for large employers, so businesses with 50+ employees should evaluate compliance needs before adopting this approach.
Conclusion
Health stipends are a modern, flexible way to support employees’ healthcare needs without the administrative burden of traditional plans. For small businesses, startups, or companies looking to provide choice and simplicity, stipends deliver a win-win solution.
Ready to rethink employee benefits? Consider implementing a health stipend program to empower your team and keep costs under control—because when it comes to healthcare, flexibility is the ultimate benefit.
Take the Next Step
Empower your employees while simplifying benefits management for your business. Don’t wait to achieve your business goals any longer! Contact Small Business Benefits at 616-425-9740 or visit sbbmi.com to see how we can customize a solution that works for your team. We’re here to help personalize health care for your employees and save your business money.
For additional resources, explore Healthcare.gov and our Small Business Benefits resource hub.
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