Savings Through Health Reimbursement Arrangements
Published October 2009
With the costs of health care constantly rising, businesses are feeling the impact of devoting more of their resources to healthcare spending. Consequently, employers are looking for new and different ways to control these costs which causes some employers to change health care plans almost every year. One of the alternatives employers are turning to is Consumer Driven Health Plans (CDHPs). Companies that offer CDHPs saw employee enrollment continue to rise from 8% in 2006, to 10% in 2007 and up to 15% in 2008. Also 31% of new coverage issued in the Small Group market was for High Deductible Health Plans.
One study shows that CDHPs cost 4.8% less than PPOs and HMOs. One reason for the cost difference is because CDHPs have higher deductibles than other plans, though they still cost at least $400 less per employee compared with PPOs with $1,000 or higher deductibles.
Factors that contribute to CDHP success:
- Employee contribution schedules and other financial incentives to enroll
- Extensive communication and employee education
- Tailoring the plan to meet the needs of the workforce
- Finding the right vendor
Employer health benefit costs continue to rise at twice the rate of inflation and this trend is likely to continue. A study conducted by Hewitt Associates found that costs are the most common reported reason for employers to turn to CDHPs.
|CDHP Program Objectives||Percentage of Employers with this Objective|
|Promote Self Service Environment and Accountability (increased consumerism)||70%|
|Contain Rising Health Care Costs||61%|
|Provide a Low-Cost Plan Without Increasing Employee Contributions||33%|
|Offer Cutting-Edge Benefits||20%|
|Expand Choice of Offerings||40%|
Savings When Paired with an HRA
CDHPs are usually a high deductible health plan paired with either a Health Reimbursement Arrangement or a Health Savings Account. A CDHP paired with an HRA allows employers to control the design and cost of the plan which creates the possibility of real savings.
Example of a CDHP
Change a PPO plan design from $500 single / $1500 family deductible to $1000 single / $3000 family. Then an HRA could be set up to self fund the difference between the employee deductible of $500 / $1500 and the plan deductible $1000 / $3000. Premium savings for changing deductible will fund the difference. The level of utilization determines the savings and cost.
Imagine as an employer that 20 employees are insured, 10 with family coverage. The maximum cost of the HRA reimbursements is $25,000.
|Employees||HRA Portion of Deductible||Total Possible HRA Reimbursement Amounts|
Potential Savings to the employer from HRA:
40% utilization = $15,000 savings
60% utilization = $10,000 savings
80% utilization = $5,000 savings
The only time an employer would not see savings is if all of their employees used their entire HRA, which we’ve found is rare.
Our consultants can work with your health insurance agent to help you explore the options available and design a plan that meets your goals. We are experts in “best practice” development. BASIC is a leader in HRA administration and it shows in our variety of plan designs. We administer everything from deductible only and prescription co-pays to multiple tiered plans where the plan switches between employer and employee responsibility.
Call 800-444-1922 ext. 3 to be put in touch with a consultant in your area. Or you can request a proposal at our website https://www.basiconline.com/solutions/Resources/proposal/