How to use an HRA to make your plan more affordable

Tired of your double-digit fully insured medical plan increases year over year over year?

You are not alone!

As employers struggle to provide affordable health care to their employees and meet the budget requirements of their organization, the annual increase from fully insured medical carriers causes a serious strain.

A portion of the annual increase is based on the medical and prescription cost trend. Other portions of your increase are:

• carrier profit & administration;
• your own claims experience;
• the pure nature of the fully insured model.

In a fully insured medical product, you may have little or no insight into how your plan performed or you may have some data but it is unclear why the increase number is so high.  In the fully insured world, good risk pays for bad risk and bad risk pays even more.  It is what the fully insured model is based on.  That is unlikely to change.

What will lower the cost of the plan(s)?   Raising the deductible on the plan is one of the biggest drivers to lowering premiums.  (The next is increasing the out-of-pocket maximum, copays and/or coinsurance.)

Increasing the deductible means your employees have to pay more out of pocket – right? No, not necessarily! A Health Reimbursement Account (HRA) can help.  By increasing your deductible, you can lower the insurance premium you pay for every person on the plan and therefore lower your employer cost overall.

You can then implement an HRA, which can reimburse employees for expenses that would be subject to the deductible.  The money is only spent if an expense is incurred and the design is completely customizable.

For example:

• Company ABC currently has a plan with no deductible and received an 18% (~+151k per year) increase on their fully insured medical plan
• If they change their plan to a $1k per employee/$2k per family deductible the medical carrier will lower the increase to 12% ( $101k)
  • As always under ACA, all preventive care is covered at 100% with no deductible applied
• That is a savings of approximately $50k
• ABC company then implements an HRA plan and designs the plan to cover 100% of the $1k deductible for each employee and 50% of the deductible for each family
  • The company uses their Benefits Consultant (Exude, Inc.) to model out the predictions of what the HRA will cost them
  • It is determined that even if utilization is high in a given year, the HRA will save them at least $30k per year and in years with low utilization it could save them more.

In essence, the employer is self-insuring via an HRA most of the deductible on the plan.   The HRA only pays out the reimbursement when an actual claim is filed as compared to paying premiums on the more generous plan design for all enrolled members.

From the employee experience:

• The member enrolls in the plan
• If they should need care that is subject to the deductible, they receive the care they need and pay any costs associated with the deductible
• Then they submit an HRA claim with proof of the service and payment
• The HRA reimburses the employee in full up to the maximum amount allowed in the HRA design for the plan year.

In terms of the implementation of an HRA, an administrator can be obtained to process/reimburse claims, and provide an HRA Plan Document (as required under ERISA).  Non-Discrimination testing should also be completed on an annual basis.

HRAs are completely independent of the medical plan carrier and therefore only need to change on an annual basis if the employer would like to change the design of what is being reimbursed.

This is a great tool available to employers of all sizes to help lower the cost of healthcare.