Should your Business Consider Health Reimbursement Arrangements?

There are reports that as high as 30 percent of employers surveyed are giving serious consideration to reducing or eliminating health benefits. Many Patch readers and subscribers run small businesses. These benefits can be an important aspect of a compensation package to attract and retain the talent needed for the business to be successful–yet it is becoming increasingly difficult for companies to afford the increasing premiums.

New “Benefit Suite” systems are available that increase the selection of group programs but most savings are still realized through increased cost sharing, deductibles, coinsurances, etc. The best way to actually save is to develop programs that provide for needed employee benefits specific to the individuals situation while not purchasing benefits that are not needed.   

An increasingly popular option is the use of Health Reimbursement Arrangements (HRAs). In a nutshell, these programs reimburse employees for their monthly medical expenses (which will include individual insurance premiums) based on an allowance established by the business. The business is able to budget and control expenses while still providing employees with critical help to fund their healthcare.

There are pros and cons and the decision does need careful consideration. Employees will need to obtain individual policies. In doing this, the employee can better purchase coverages specific to their needs. Individual insurance has the added benefit to the employee of being guaranteed renewable as long as the employee stays current on premium payments. That means if the employee is later diagnosed with an illness or leaves his or her job, they still have their individual policy in force. However, private insurers can still decline insurance based on pre-existing conditions. There are alternatives for these people (see my previous blog on this subject). Note, HRAs do carry tax advantaged status (consult your tax professional for specifics to your situation).

Unlike conventional wisdom, individual programs are often significantly less expensive than group programs for similar coverages. It is my hope that this blog helps businesses look at more efficient alternatives to providing health benefits for our employees while still controlling these expenses rather than facing the decision to cut programs entirely.