The global COVID-19 outbreak has been far-reaching, and the fallout extends beyond the serious health implications. Business owners have a new challenge to mediate financial loss and brace for further instability. Many of our clients are using their QSEHRAs and ICHRAs to do exactly that.
In the midst of the crisis, we’re already seeing early evidence that HRAs like the Individual Coverage HRA (ICHRA) and the Qualified Small Employer HRA (QSEHRA) will prove more resilient than traditional group plans, allowing business owners to make strategic decisions quickly. With group plans, there just aren’t many levers to pull—you either cancel your plan or you don’t; your employees are either part of the group plan or they are not.
Under normal circumstances, the familiarity of traditional group health plans makes them a popular choice as a small business health insurance option. But in uncertain times like what we're living through today, the predictability, portability, and flexibility of “defined contribution” health insurance models should be closely considered by employers now and in the future.
How business owners are using HRAs to combat the effects of COVID-19
We’ve seen about 25% of our clients make changes to their HRA in response to COVID-19. About half of these clients have modified their HRAs to maintain reimbursements for employees that are laid-off, furloughed, or have had their hours reduced. About a third of those clients have simply paused their HRA contributions and plan to pick up when business re-opens. Employees will lose their reimbursements, but they will keep their coverage and their plan.
Tax-friendly reimbursement models like QSEHRA and ICHRA are built to sustain things just like the current situation in which we find ourselves, largely in part from the flexibility, continuity, portability, budget control and predictability that are inherent in their design.
In uncertain times, flexibility is key.
Flexibility: From a timing standpoint, QSEHRAs can be amended anytime; ICHRA is less flexible mid-year but the design itself is flexible on what to allow, how much to pay, and which classes receive which benefits. Business owners can postpone or split up reimbursements or find creative solutions to make it work when cash is tight.
Continuity: Regardless of what happens to the company or reimbursement rates, employees take their health plan with them so there’s no gap in coverage. With more than 26 million jobless claims in the past five weeks, it's becoming more clear that tying insurance to employers sets up individuals for lapses in coverage when they need it most.
Predictability: In contrast to many employers who will anxiously await high renewal rates this coming year, employers who choose to reimburse will have full control over their own healthcare costs next year and won’t need to worry about participation rates in the wake of layoffs.
Budget-friendly: From the very start, HRAs are budget friendly because they allow the employer to set a budget that works for them. As cash flows change, whether temporary or year-over-year, the employer can change the monthly reimbursement rates as well as the accepted reimbursable costs. With QSEHRA it can even be updated in real-time.
Cutting costs while still offering helpful health benefits. There are several HRA design tactics that help employers tighten the belt with their benefit offerings. Some companies we are talking to are looking to cut costs, others are hoping to help their laid off or furloughed workers with healthcare costs, and some are thinking about how benefits play into long-term solutions.
Here are a few examples, based on our conversations with real business owners. And remember, these moves are not really possible with traditional group insurance.
- Limiting reimbursements to premiums only
- Limiting reimbursements for plans through a spouse's employer
- Asking employees for increased flexibility by holding off making claims if they can (monthly allowances accrue for later use in the year) and honor reimbursements that employees can’t afford
- Modifying plans to extend benefits to employees otherwise ineligible for group coverage
- Adjusting plan requirements, such as the minimum number of hours threshold, so that employees that have had a reduction in hours can still qualify for employer reimbursements
For groups where layoffs have been inevitable, we’ve seen a few cases where clients have dropped their group health plan and encouraged laid-off employees to go to the marketplace to purchase individual policies where they will likely qualify for tax credits and subsidies. When the employer reopens and rehires, instead of reinstating the group plan, they will adopt an ICHRA and replace government subsidies with employer reimbursements. Remember, government subsidies will go away or will be greatly reduced when people return to work since earning additional income limits peoples’ subsidies. Employees will keep their plans throughout and won’t get whiplashed with resetting deductibles and extra hassles.
Long-term strategic planning. More than one conversation has revealed that businesses had to lay off employees and are considering an ICHRA over a group plan once business ramps up to help cut costs and reduce administrative burden.
At the end of the day, the clients we are talking to want their employees to be covered in the wake of this pandemic and it’s been interesting to see the benefits inherent to HRA design play out in real life.
Why HRAs trump group plans and self-funded plans during a pandemic
It’s also important to consider the risk employers are taking with traditional insurance. Self-funded plans (also called self-insured plans, when employers assume the financial risk for providing health care benefits for their employees), are on a path to destruction if many employees are infected; many of those companies should be looking for an exit strategy.
Group plans could see a premium spike next year (and the next and the next) as the health system absorbs the costs of coronavirus treatment and testing, as well as waived cost-sharing, copays, and more. While elective surgeries and medical spend are down at the moment, it’s unsettling and difficult to predict how health insurance costs will react.
The point is, whether group rates go up or stay flat, what a business owner will ultimately pay is unpredictable and uncontrollable—both challenges that new reimbursement models of health benefits are built to withstand.
We are honored to help small businesses navigate this weird time, and help their employees too. Regardless of whether or not layoffs have to happen, if an employee participates in an HRA, the design prevents lapses in coverage and the requirement for qualified health plans means they won’t have a weak plan that won't offer sufficient coverage should the worst happen.
If you have any questions about how to modify your HRA plan to better navigate the COVID-19 pandemic or if you're considering setting up an HRA in lieu of a group plan, give our team a shout. Our team of experts is ready to help (from home, of course). Stay well!