The cost of healthcare is on everyone’s mind these days.
First, Congress is looking for ways to repeal and replace the law – hoping this will result in lower premiums. Secondly, Insurance companies are looking for ways to stay profitable, even if that means pulling out of certain markets. Finally, employers are mitigating by either passing the cost to their employees or by depleting their once robust benefit plans. No one’s happy and each participant in our system runs in circles with the same question: who will pay for it?
While there are both political and practical viewpoints out there, this article will focus on a solution that gets little publicity: Properly utilizing a Health Reimbursement Arrangement (HRA) aligned with a High Deductible Health Plan (HDHP).
Insurance, as we know, is the transfer of risk. Somehow it morphed over the last 20 years from a purely catastrophic security blanket into something like a key-card promising cheap access to care. And based on the most recent numbers it is a very expensive key-card to pay for, when over half of the US Population is spending less than $500 on out of pocket healthcare expenses.
It can make an employer scratch their head at the $487 per month price tag per employee on the typical Health Plan, knowing that possibly half their employees spend less that $500 or heck, even $1,000 per year if the AHRQ & Health and Human Services survey is skewed.
Through an HRA-HDHP combo, employers are essentially taking their a baby step toward being self-funded. This means you have the potential reap the rewards just like insurance companies do, but your risks are fixed and predictable.
What happens with an HRA (the red-headed stepchild to the much publicized HSA), is that you the employer establishes a “promise” to pay for employee incurred claims up to a set dollar amount. Note, this is a promise or liability account–not a set contribution. The key here, is that you as the employer don’t actually spend any money on your employees who don’t need to take you up on your “promises”. You keep it, you never spend the money if they don’t need it.
Let’s walk through a practical scenario, using a health plan with 50 enrolled employees:
- The average monthly cost for employee only coverage on a low deductible (1k-2k) health plan is: $585.
- Now, the average cost of a high deductible health plan (5k-6k) for an individual is $390.
- The savings between the 2 options is roughly ∼ $200 per employee. $200 x 50 employees per month is $10,000, or $120,000 annually.
Now, based on what we know of the US Population, only 18%-20% should spend more than $1000. But that’s not “safe” enough if you don’t know your own company’s data. Let’s assume that 60% of your employees will need to spend $1000 or more.
- 40% of your employees (that’s 20 Employees in our scenario) spend $600 or less. Round up to $600 to make it easy an $600 x 20 = $12,000
- 20% of your employees (that’s 10 Employees in our scenario) spend $1000 or more. And we’ll add $200 just a cushion. $1,200 x 10 = $12,000
- 40% of your employees (the remaining 20 employees) spend the full $2,000. $2,000 x 20 = $40,000
That’s $64,000 spent of your $120,000 savings. You and your employees are coming out ahead and set up for future success.
HRAs are very flexible, and can be modified many different ways. Some plans allow for 1st dollar benefits (typically with a lower spending limit like $600) and some plans install the HRA on the back-end of a deductible.
Imagine your next renewal and you know that you are going to faced with raising your $2,000 Deductible plan to a $5,000 Deductible plan. Instead of simply passing the burden to the employee, why not meet them half way by incorporating an HRA on the back-end of the Health plan’s deductible? Allow the employee to take on the maintain the $2,000 deductible, then put in your promise to fund the next $3,000 if needed. Again, you know that most of your employees never reach their $2,000 Deductible. The HRA in this scenario allows you to help the few employees who need the financial assistance without burdening your company’s bottom line trying to keep the deductible low for everyone.
The top 3 drivers of high cost claims are hospital stays, specialty pharmacies, and surgeries. Getting some kind of baseline numbers on your current plan is key, and as a shameless plug for our services—we do that for you.
You can even roll out some fancy incentives like we do by incorporating a wellness plan into the HRA as a way to engage our employees. By providing opportunities to earn increases their HRA funds, we promote our team’s participation through taking action in our wellness initiative.
Think back to the 1991 comedy featuring Bill Murray, “What about Bob”. Bob was a patient who needed help from a psychiatrist. The turn of events whimsy was that Bob, the patient, ended up being the catalyst of change that helped the psychiatrist’s family and friends overcome their phobias–not Leo the psychiatrist. This of course made all the laughs in the movie as we all watched the know-it-all psychiatrist have outbursts of rage.
I bring up that classic movie to highlight the idea that the biggest help in this healthcare battle may come from a non-traditional source – even one that makes you go crazy thinking about all the scenarios that could go wrong. Not legislation, Not the insurance company you view as Evil-Corp, but from your own employees. The same patients who your health plan is trying to fix, may just be the answer when something like an HRA or HSA puts them in the driver’s seat.
While going through a health assessment or looking at your claims reports, you’ll be able to gauge if the overall health of the group is conducive to this strategy–or how big of a “promise” you want to make. And just like any successful change, employee education will be a key component to the overall success: if employees understand what the overall goal is, they’ll be able to better utilize their plan. This means that they’ll be more conscientious of both their physical health and their out-of-pocket cost.
So as the healthcare debate continues and different ideas are thrown out there, we encourage you to reach out to us so we can better understand what you’re going through and you may hear us say “What about Bob?”
About the author: Angel joined the AG team in 2016 after partnering with us on several projects for mutual clients over the course of the last decade. Now he brings his charisma, his big brain and his desire to make a positive impact to our collective team of industry leading consultants. Oh, and he is already a published author with the University of Texas Press before he ever picked up a pen for our humble AG Blog.
About AG Insurance: AG Insurance (www.agiainc.com) helps employers and their employees with solutions focused on positive organizational impact and improved employee experiences.