With the cost of employer-sponsored group health insurance continuing to rise, businesses are seeking solutions to help save on the cost of offering group health insurance.
One of the most common cost savings solutions for employers is to raise the deductible on their existing group health plan. Health Reimbursement Arrangements (HRAs) (for tax-free medical expense reimbursement) and GAP (or "bridge") health insurance plans are the two most common mechanisms to cover the added employee benefit exposure.
What is a Health Reimbursement Arrangement?
A Health Reimbursement Arrangement, is an IRS approved, employer-funded, tax advantaged employer health benefit plan that reimburses employees for out of pocket medical expenses. A health reimbursement arrangement is not health insurance. A health reimbursement arrangement is often referred to (incorrectly) as a health reimbursement account.
What is GAP Health Insurance?
GAP, or "bridge" health insurance premiums are paid to cover portions of out of pocket medical expenses under a group health insurance plan. Typically, an employer may pay (or allow employees to pay) for GAP health insurance to supplement a high-deductible group health insurance plan.
Health Reimbursement Arrangements vs. GAP Health Insurance
Health reimbursement arrangements are notional arrangements; no funds are expensed until reimbursements are paid. Through health reimbursement arrangements, employers reimburse employees directly only after the employees incur approved medical expenses.
GAP health insurance is an insurance premium, or expense, that an employer or employee incurs regardless of actual medical utilization. The premiums are paid to cover expenses that may happen over time.
Why Businesses Prefer HRAs
Businesses prefer HRAs to GAP health insurance for the following reasons:
No premiums are paid to a health insurance carrier with an HRA
Employers control all HRA reimbursements and plan design
An HRA can cover more eligible expenses than GAP insurance - see HRA Eligible Medical and Insurance Expenses
HRA expenses are based on actual utilization, and the business keeps unused funds
Minimized administration hassle and employee confusion