Health Savings Accounts and Health Reimbursement Accounts for Your Small Business
By William Johnson,
President and CEO CIBC of Illinois, Inc.
All employers get frustrated with rising health insurance costs. Just like the employers, employees also feel the pinch of diminished benefits and rising contribution levels. And believe me; they let you know about it. For both, it seems fait accompli that the sun will rise, the Cubs will not be in the World Series, and insurance costs will go up each and every year.
Even if an employer tries to do the right things to control costs on their own, it is almost like eating a shoe with a spoon; it’s cumbersome, hard to cut into small manageable bites, and you would rather be eating something else, anyway. That is where a Benefit Consultant is of value. Instead of ordering off the menu, we take the “shoe” off your plate and let you get back to the core of your business operations.
HRA and HSA Implementation
Two methods of controlling costs we can deploy are a Health Savings Account (HSA) and/or Health Reimbursement Arrangement (HRA). Businesses can use either of these or both in concert to gain control of their benefit costs. An HSA is a bank account that is linked to a high deductible health plan. When an employer or employee contributes to the HSA, those dollars immediately become pre-tax contributions. An HRA is simply a funding arrangement between the employer and employee that covers qualified eligible benefits.
So let’s tackle the HSA first. HSA eligible plans are typically lower in premium due to the fact that they are higher in deductible than regular fully insured plans, and there are no copays before you meet your deductible. If the deductible is $2500, the insured must meet that deductible and then all eligible expenses are covered at 100%. There are some states where there is a copay on prescriptions after deductible is met, with certain carriers. These plans are great for those who are healthy and rarely got to the doctor for anything outside of their yearly checkup (which should be free due to Healthcare Reform, by the way), as well as those who have medical conditions that would cause them to max out their Out of Pocket expenses in the first few months of the year. The employee still gets the discounted rates via negotiated carrier discounts, but they are on the hook for the deductible, first. Keep in mind that payroll deducted contributions to premium and HSA bank accounts are a tax savings for the employee AND the employer.
If an employer utilizes an HRA, they can reimburse the employee for eligible expenses associated with the benefit plan. If the plan has a $1500 deductible, the employer could reimburse the second $750 of deductible (or the first, but that is not optimal in cost-control methodology). Using an HRA is optimal when there are significant savings to be gained by raising the plan deductible. Another benefit is that if there is no expense, there is no reimbursement…thus, no wasted premium dollars. We run the numbers based on actuarial norms and can accurately assess your cost-benefit strategy in this arena.
It is beneficial for some employers to deploy an HSA eligible plan, and then have the HRA in place to cover portions of the larger HSA deductible. If an employer has a $1000 deductible plan, and their renewal increase is such that it has become unaffordable for all concerned to continue with that deductible, the employer could typically save enough in premium to go with an HSA qualified plan that has a $2500 (or more) deductible. Then, the employer could potentially reimburse the first $500 of deductible and the last $1000 of deductible to the employee. In this manner, the cost increases have been mitigated, and the employee still has the same $1000 deductible in essence.
Consumerism and Cost
This also places the idea of consumerism into the employee’s view of healthcare. Employees tend to embrace going to Urgent Care facilities that cost $60 rather than the ER that costs thousands because THEY are a partner in the cost sharing. And this type of employee-based cost/benefit analysis is a very good thing for your business.
Once employees become used to thinking about their healthcare in this manner, you can begin to utilize other methods to drill down to other levels of savings. Since we meet with all of our clients’ employees during these types of transitions, I can tell you that employee fear of a high deductible is real. When presented with the savings opportunity, it is our experience that employees understand the big-picture and start making cost-conscious decisions for themselves…which are indirectly good decisions for your business.
Let us know if you are tired of the “shoes” your broker delivers at each renewal. We find Solutions for your business. Solutions, that work.
This article is intended for informational purposes only and should not be construed as legal advice. Please consult with a legal professional for legal opinions.
To get more information on CIBC of Illinois, visit us at www.CIBCINC.Com or call toll free 877-936-3580.
Posted on January 15, 2013, in Health Care Reform, HRA, HSA, Plan Design, Uncategorized and tagged Benefit Consultant, Consultant, employee benefits, Employer Mandate, ERISA, health insurance, Health reimbursement Arrangement, Health savings Account, Healthcare Reform, HRA, HSA, Insurance, Kankakee, Obamacare, Plan Design, PPACA, Self Insurance. Bookmark the permalink. Leave a comment.