Most companies offer some sort of (tax exempt) cash plan to help employees pay their medical bills. Not surprisingly, one of the most common issues that employers face is whether to use an HSA (health savings account) or an HRA (health reimbursement arrangement).
Common logic says that HSA’s are better bet for employees, right? You would be right. Except that this isn’t common logic, this is health insurance, where there is always more than meets the eye. A lot like a magic show, except kind of boring.
What is an HSA?
With HSA’s, employees receive employer funds into their own savings account, they can contribute to them and ultimately keep this money. However, when an HRA Is used, employees don’t contribute their own money and the employer can take the money back at the end of the year. Think of it like one big corporate account that each employee gets limited access to.
What about an HRA?
Ok, so now let’s talk about why the reimbursement arrangement can be the best option. I’ll paint you a picture – 69% of Americans (so, the average person) have less than $1,000 in disposable income that can go towards paying health bills. So even if the average employee can fund their HSA themselves, they don’t because they can’t afford to.
On average 90% of all claims come from only 30% of your employees. This means 70% of employees won’t need all the money while the 30% (who do have larger claims), need more.
So how would the HRA address this? Because on average, only 45%-65% of HRA funds are used throughout the year. Knowing this, you can afford to fund the HRA a little higher because you know that you’ll still have almost half of your money at the end of the year. This way, people that really need the money can access it, and those that don’t, wont need to.
We just have to help those 30% get to their deductible (with their reimbursement account), and keep the plan affordable for everyone else. We’ve now met the perfect balance between a plan that actually works, and perceived affordability in the eyes of your staff.
You see how nicely this works? Ask yourself this, when is the last time that you were able to save money and improve your benefits plan at the same time?