Employers can save big, without reducing benefits.
Health Reimbursement Accounts, or "HRAs," have been around for a while now, and have been increasing in popularity lately due to the rising cost of medical insurance.
With the medical insurance costs rising every year, having a low deductible is not affordable for most employers any longer. So what are they doing? Many are going to an HRA strategy to provide good coverage, yet keep the benefit program affordable.
It is important to understand the different types of HRAs:
In self-funded HRAs the employer agrees to reimburse the employees for some of their medical expenses. For instance, the employer might have had a $1,000 deductible medical plan, and due to costs, now has to move to a $3,000 medical plan.
The employer may set up an HRA to reimburse the employees the difference in the deductible, thus offsetting the costs to the employees between the old $1,000 deductible plan, and the new $3,000 deductible plan.
The employee pays the first $1,000 in this example, and the employer reimburses any amount over that up to $3,000. To set up an HRA like this, there is a small cost to get the plan documents prepared and stay in compliance, but it's fairly simple really.
Pros of a self-funded HRA are lower costs to the benefit program.
On the other hand, the employer assumes all of the financial risk for the reimbursements, which requires cash flow sometimes quite a bit of it. This strategy also requires special plan documents prepared by a third-party administrator.
An insured HRA, meanwhile, is an insurance policy that covers the difference between the old deductible and the new higher deductible medical plan. Rather than funding the HRA themselves with cash flow they may not have,the employer buys the insurance to protect against any financial outlay for reimbursement.
The pros? No financial risk to employer, yet still saves money, and there's no requirement for special plan documents.
But the costs may be slightly higher compared to a self-funded HRA.
Some business owners have saved over $40,000 annually. In fact, more than a few times I have been able to increase an employee's net take home by over $300 a month, by lowering their benefit costs with no reduction in coverage. That is a $300-a-month raise that employer gave their employee, at no cost to the employer.
HRAs are a strategy to keep medical coverage high, yet lower costs. There are also other cost reducing concepts as well. The key is to work with a resource who has experience and knowledge in this area, to help you choose the solutions that work best for your own, unique, business.
Warren Rund is an employee benefits specialist in Reno. Contact him at Warren.rund@gmail.com.
