How an HRA Health Plan Maintains Quality While Saving Money

The secret is out. Attracting talent has become recognized as a cornerstone for succeeding in business.

According to a survey by Glassdoor, out of 50 benefit types, health insurance ranks as the number one predictor of employee satisfaction. So it’s no wonder companies are paying attention and forking out large sums of cash for high-end health insurance plans.

This is how you get the best of the best in today’s competitive landscape.

If you subscribe to the belief that attracting and keeping talented employees is integral to the success of your business, and you’re dedicated to providing high-quality health coverage to your employees, you’ll want to know about health reimbursement accounts (commonly called an HRA).

What is an HRA Plan?

An HRA is an account set up by employers that reimburse employees for medical expenses that are not covered by the company health plan. For companies offering high-end health plans, restructuring to implement an HRA can lead to significant savings.

For example, let’s say your company is spending $700K on its employee health plan for high-quality coverage with low individual deductibles. Depending on your company’s demographics, there is a good chance the benefits and health services from the plan are not being fully utilized (and money is being wasted).

By setting up an HRA, your company could instead purchase a middle of the road plan for $520K, and use the HRA to reimburse employees in the cases when they are in need and actively using health services.

The result is that employees receive the same quality of care, and you as the employer cover any of the added costs to meet the higher deductibles. And in many cases, the cost of your health plan, plus the added costs to meet those deductibles, will end up being far less than what you paid for your original plan.

So now that we’ve answered the question what is an HRA account, we can explore how HRA’s work in practice.

How Does an HRA Account Work?

There are two types of HRA’s. The traditional way and what we like to call a “smart HRA.”

1. The Traditional HRA

When an employee receives an explanation of benefits (a statement explaining what they’re covered for and what they owe, known as an EOB), they submit the bill to the HRA company. The HRA company then sends them a check to reimburse for the expense that wouldn’t have been covered by the purchased (middle of the road) plan.

2. The “Smart HRA”

Rather than employees needing to submit their EOB to the HRA company, a “smart HRA” connects the insurance carrier with the HRA company and removes that added responsibility and effort altogether. In addition, employees can be issued a smart debit card that uses sensors to authorize certain amounts to be spent in certain places, like covering the difference in the cost of a copay to mimic the original premium health plan.

HRA Account Pros and Cons

Like everything in business and life, there are trade-offs to consider when it comes to HRA health plans.

Pros

1. Avoid the hassle of switching carriers

This is one of the biggest HRA benefits. If you have Aetna, you can stick with Aetna. If you have Blue Shield, you can stay on with Blue Shield. There is minimal friction when you can keep your current carrier.

2. Average 15% savings

In the hypothetical example from above, when the company went from a $700K premium health plan to the $520K middle of the road plan with an HRA, they’re likely to only spend $80K through their HRA, netting them savings of around $100K.

3. Gathering data for the first time (“smart HRA” only)

Most companies that implement a “smart HRA” have never had access to transparency with regard to claims. “Smart HRA’s” flip this script and give you data on what claims are paid out. You can begin to understand for the first time what types of claims are happening within your organization. This gives you data and the power to make better decisions.

4. Stepping stone to possibly even more savings with a self-funded health plan (“smart HRA” only)

With increased transparency, your company can find itself in a better position to possibly implement a self-funded plan in the future which can generate even more savings.

Cons

1. Extra steps for employees (traditional HRA only)

Chances are you expect a lot out of your employees. And we all know how stressful it can be to deal with medical bills. For some companies, sticking employees with the added responsibility to submit their EOB’s to HRA companies and go through that process is a deterrent for implementing an HRA.

2. The need to wait until the end of the year to see what savings will be

It’s impossible to get an exact forecast of what your health spend will be for the year when structuring in an HRA. You can only estimate.

3. Risk of abnormally high claims

Every company has the risk of an employee or group of employees having health issues in a given year. In a rare scenario, this could lead to a middle of the road plan with an HRA costing more than the original high-end plan.

The Beauty is in the Ease of Transition

When it comes to seeing savings on your healthcare spend fast, with the least amount of effort, we’re not aware of any better option for companies that fit the bill for structuring in an HRA.

Being able to implement an HRA with any insurance carrier is a huge advantage.

And by gaining access to tools with a “smart HRA” that will allow you to make better decisions around your company’s health spend, it can also be looked at as an investment in your company’s future.