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Should your benefits strategy include a Health Reimbursement Arrangement?

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Pros and cons of the ‘self-insured lite’ strategy

What is an HRA? A Health Reimbursement Arrangement is a tax-advantaged employer-sponsored account to reimburse employees for medical or insurance costs.

For small organizations with less than 50 employees, employers can reimburse for the cost of individual health insurance premiums. For larger employers, the accounts can be used to help employees pay for out-of-pocket medical costs.

One way to use an HRA alongside a group plan is a strategy Bernard Health calls “self-insured lite.” Under this strategy, the employer chooses the highest deductible plan, but reimburses employees for expenses incurred above a certain level.

For example, you double the deductible from $2,500 to $5,000, but reimburse employees for any dollar spent over $2,501 using an HRA. If you have high-utilizers, they’ll be protected from increased costs, while the employer avoids over-insuring their lower-utilizing employees.

Here are some pros and cons of the “Self-insured lite” strategy.

Pros and cons

Pros:

1. Premium savings—Cheaper plan options means reduced costs.

2. Easier to budget—You maintain the fixed monthly cost for premiums

3. Insurer carries the risk above your reimbursement responsibilities—Reduced risk as compared to a fully self-insured strategy

Cons:

1. Limited plan design—Plans are based on what the insurer will allow

2. New financial liability—Reimbursing employees creates a new cost stream.

3. Premiums based on the employer’s and insurer’s claims—Less benefit from a healthy population

Most employers have more funding options than they realize. Check out our free e-book “Evaluate Financing Options” here, or call us to find out how we can help your organization find the most cost-effective strategy by clicking below.

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