In the past, the main advantage of traditional, employer-sponsored group plans was that they were deductible expenses for employers and were taken out of employee paychecks on a pre-tax basis. These days, big group plans are simply unaffordable and cumbersome for many business owners to offer. Group plans also force everyone to choose the same type of plan, despite your employee’s different needs and preferences.
Health reimbursement arrangements might just be able to offer solutions to some of the most common pain points associated with group plans. Let’s look at some!
Common concerns associated with group plans
First, let's quickly go through many of the challenges associated with group plans. We hear these stories time and time again from our clients.
- Participation: Most states have a high participation rate of around 70% which makes it difficult for small business owners to compete with.
- Health risk management: Perhaps your company doesn’t have the reserve to take on health risk anymore. With an HRA, since you are offering a fixed amount per month, there’s no need to spend time & mental energy trying to implement wellness programs & manage your employees’ healthcare spend to control your costs on a traditional group health plan.
- HR administration capacity: Perhaps you want to offer health benefits but don’t have the capacity to manage it, or you don’t have an HR department to manage benefits. Traditional group plans come in all sorts of crazy shapes and sizes—a dizzying and confusing concoction of deductibles, coinsurance rates, employee vs. employer contributions, single versus family limits, etc. There’s also the hassle of census uploads and comparing quotes you have no control over. Employers are forced to guess on plan designs that’ll keep employees happy and fit the budget. Then you have to spend time managing that plan.
- Budget woes: Tired of watching your budget continue to go up to cover the costs of renewal increases each year? Simply can’t afford a group plan? The latest data from the Kaiser Family Employer Health Benefits Survey shows a 5% increase in health insurance premiums, passing $20,000. On average, employees pay $6,000 of that total, with employers covering the remaining $14,000.
- Out-of-state employees: Maybe your group plan doesn’t work for out-of-state employees. This is a real concern for companies with remote workers. Instead of trying to find a group plan that works in multiple states, offer employees an ICHRA and let employees purchase plans in their local markets that best fit their needs. Since insurance rates vary by geographic locations, you can set your classes up by state. For example, employees that live in California will get $600 and employees living in Texas will get $500. There is no limit to the number of classes you set up! Employers can set up varying rates for each state employees live in and then further increase allowances by marital status or age.
- Only premiums are covered, while qualified medical expenses are not. With an HRA, employers can limit reimbursements to only go towards eligible premium expenses. Typically, this refers to individual health insurance premiums but could also include eligible dental premiums, vision premiums, etc. as long as the employee has a qualified health plan for ICHRA. Most employers choose to allow medical expenses to be reimbursed too. Note: Employers can choose to exclude categories of expenses (i.e., “prescriptions”) as long as the exclusion is applied fairly to everyone.
HRA benefits in action
The design inherent to HRAs combats the many pain points business owners can have with group plans. Here are a few excellent examples.
- Flexibility: Being on a group plan is like requiring everyone to wear the same size suit. Since everyone has their own needs and preferences when it comes to their health, doctors, and prescriptions, an ICHRA allows each employee to choose what’s best for them.
- Efficiency: You can offer different monthly allowance amounts to different groups of employees. To help you prioritize your health benefits budget, these 11 employee classes separate employees into groups by legitimate job-based criteria like hours worked or geographic location.
- Cost control: (the #1 benefit that made our client sign up when they responded to our survey). Employers can define their benefits budget and stick with it. Simply set the allowable reimbursement rates and employer costs will never be greater than that. And if employees don’t buy insurance or don’t use all of their allowance? The employer keeps the money. No more surprise group increases year after year, no more pricey group plans, and no minimum participation requirements to worry about. With an ICHRA, Employers have the option to have unused allowances to carry forward to the following year or reset to zero. Unused funds stay with employer.
- Personalization and portability for employees: Employees can shop the plan on the individual market that best meets their needs. If one employee prefers their Aetna plan, no problem. If another would like a BlueCross plan because the network includes his preferred doctors, that’s great too! Job changes aren’t uncommon in today’s market. But your health insurance shouldn’t have to change just because you change jobs. If you are offered an ICHRA at a company and then end up leaving—say, to go out on your own, your health plan will stay with you. No need to stress over pricey COBRA plans or switching plans that might not have your doctor in network; your individual plan will stay with you.
Ready to make the switch?
Have we convinced you that HRAs might be the way to go? Here’s how to switch from a group plan to an HRA. If you want to keep doing your research, our blog has a slew of great information for you, and there's always our comprehensive ICHRA guide. Our team of HRA experts are standing by to answer any questions you might have!