A major challenge faced by today’s employers is how to maintain a competitive benefits package while containing or reducing costs. New options continue to emerge. Below is a summary of some of the alternatives that can help contain costs while limiting employee frustrations due to decreased coverage.
Health Reimbursement Account
Health Reimbursement Accounts (HRAs) are healthcare plans paid for by an employer to reimburse medical expenses of its employees, their spouses, and dependents. The employer sets aside a pre-determined amount on an annual basis and establishes the parameters for what expenses the HRA funds may be used. Any unused dollars remain with the employer. All employer contributions to the plan are 100% tax deductible to the employer and tax-free to the employee.
HRAs are most commonly offered alongside a High Deductible Health Plan (HDHP) which can be attractive to employers as they will almost always result in reduced premium costs. The savings gained from the lower premium costs can then be used to fund HRA contributions. By funding an HRA, the employer effectively bridges the gap between the higher deductible and the amount at which the insurance coverage “kicks in” for their employees.
Studies show that only a small percentage of employees actually use their healthcare coverage, meaning with a traditional plan employers often pay health insurance premiums for employees who are not utilizing the coverage. With an HRA, an employer is viewed in a positive light by providing a high quality plan to their employees while still benefiting from lower healthcare costs.
Medical Gap Insurance
Gap Insurance is insurance on your insurance. With the cost of monthly premiums on the rise, more and more companies are electing high deductible health plans. Gap insurance is another form of supplemental health coverage, it is also known as a “limited benefit” plan. The plans provide lump-sum benefits for things like covered accidents and critical illnesses. For example, a hospital indemnity plan would reimburse a set amount if you have an illness or injury that puts you in the hospital.
The benefit to the company is they can still offer a package of health benefits that keeps the premium for employees down while limiting the employees out of pocket costs throughout the plan year. A Gap plan also removes the unpredictability of covering an employee’s deductible costs by giving them a set monthly premium for the Gap policy coverage instead.
A self-insured group health plan is one in which the employer assumes the financial risk for providing health care benefits to its employees. Companies choose to self-insure for greater plan control and flexibility, visibility into claims and to save the profit margin that an insurance company adds to its premium for a fully-insured plan.
There are two main costs to consider when evaluating a self-funded plan, fixed costs and variable costs. The fixed costs include administrative fees, any stop-loss premiums (stop-loss policies are instrumental in establishing a “worst-case scenario”, or aggregate for any given year), and any other set fees charged per employee. The fixed costs are billed monthly by the selected third party administrator or carrier, and are charged based on plan enrollment. The variable costs include payment of health care claims. These costs vary from month to month based on health care use by covered persons.
Captive insurance is an alternative to self-insurance in which a parent group or groups create a licensed insurance company to provide coverage for itself. The main purpose of doing so is to avoid using traditional commercial insurance companies. It allows the captive to tailor coverage appropriately for the organization’s needs.
Instead of paying a premium to an insurance carrier, the premium is paid to the captive, depending on the level of claims received, the captive could retain any excess of the premium received over claims paid, but, conversely, claims could exceed the premium paid.
Level-funded plans are a middle ground for employers between fully-insured and self-funded plans. These plans allow employers to dip their toes in the self-funded world, but with less risk. The upside is they offer the option to share in any unpaid premium while capping the employer’s total exposure and risk for the plan year.
With level-funded plans the employer pays a fixed monthly cost (premium), the same as they would with a fully insured plan. The premium gets broken down into two parts: paying claims and paying administrative fees.
The benefit of level-funding is at the end of the plan year, if the portion of the premium that went towards claims is less than the total amount of claims paid by the carrier throughout the year, the employer will then receive a portion of the premium back. In the event of a catastrophic clam, the insurance carrier will cover the cost without an additional increase in the premium for that plan year. It’s a low-risk way to share in the reward that comes from promoting wellness, encouraging consumerism and reducing claims amongst employees.
As you can see, there are many options to consider for your business. An experienced employee benefits consultant, like those at Univest Insurance, can help your company create a competitive and comprehensive benefits package that can help attract and retain top talent. To have a conversation about what strategies may be right for your company, please contact us at 800-220-3077 or email@example.com.
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