Groups that currently have traditional health insurance can often save 30-40% with the HRA plan. The HRA, or health reimbursement account, has been around for a couple of years, however the benefits are not widely known. It’s a way to self-fund some of the smaller expenses and reimburse the employee in the background so that, as far as the employee is concerned, the plan looks, feels and works like their low-deductible plan with copays. Another option is the HSA or Health Savings Account plan. This type of plan allows either the employer or the employee to deposit money into a tax-free savings account that the employee has control over. That is why these are also known as self-directed plans.
From the employee’s point of view, these plans give a lot of freedom in how their insurance money is spent and the employee can take this account with them when they change employers. The funds remain in the account until they are used or, at the employee’s option, they can withdraw the money after age 65. At that point, he avoids the 10% penalty but must pay taxes. One might consider leaving the funds in the MSA even after retirement and use them for medical expenses not covered by insurance and thus avoid paying taxes. Groups of 25 full-time employees or more have another option in addition to the above, a split capitalization plan. The split finance plan is a step down from a self-funded plan and should be viewed as a stepping stone to a self-funded plan. The plan works much like the HRA plan explained above, except for two main points. If the claims are less than expected, the savings are returned to the employer. The other benefit is ongoing reports that show claim history. Although personal treatment information is not disclosed to the employer due to privacy laws, the report shows the amount of the claims and the person submitting them.
This information helps my company better control medical costs and perhaps use some of the saved costs to promote wellness and fitness programs. With information learned from a split financing program, businesses with more than 100 covered employees may want to venture into self-financing plan land. Unless the company has a lot of money, insurance companies take losses above a predetermined amount. It is generally recognized that undertaking this without the backing of an insurance company is too risky. Consider the fact that even insurance companies spread risk by buying reinsurance from other insurance companies to protect against an unforeseen natural or man-made catastrophe.
richard evans