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How Can HRAs and Individual Insurance Replace Self-Insured Plans?

Written by: PeopleKeep Team
January 19, 2010 at 1:44 AM

In a previous post, Rick described how a self-insured group health plan works. The purpose of this post is to provide an example of how HRAs and individual policies (what we call "ZaneHRA") might replace a company's self-insured health plan. Question_Mark_by_Valerie_Everett

How an HRA can help a self-insuring company reduce their health benefit liabilities.

Illustrative Example: ABC Manufacturing (1,000 employees)* 

Annual Exposure and Cost with a Self-Insured Group Health Plan

ABC Manufacturing's group health insurance is partially self-funded with a Third Party Administrator (TPA). They purchased a stop-loss policy covering claims in excess of $20,000 per employee per year that costs them $50,000 ($50 x 1,000) per month. The stop-loss policy caps ABC Manufacturing's exposure at $20,000 per employee per year. ABC Manufacturing's total risk exposure for the year is $20,000,000 (1,000 x $20,000) in claims. They predict that total claims for the year will total $5,000,000 which equates to an average monthly premium of approximately $467 per employee ($5,000,000 / 1,000 / 12 + $50).

Total Annual Risk Exposure = $20,000,000

Predicted Actual Cost = $5,600,000 (or ~$467 per month per employee)

Annual Exposure and Cost with ZaneHRA

ABC Manufacturing makes available an average of $5,600 per year (~$467 per month) to each employee using ZaneHRA. Their total risk exposure for the year is $5,600,000 ($5,600 * 1,000) Each employee purchases their own individual insurance policy and uses ZaneHRA to get reimbursed tax-free. Since ABC Manufacturing only has an expense if HRA funds are utilized with ZaneHRA, they predict that only 80% of the ZaneHRA funds will be utilized this year costing them approximately $373 per employee per month ($467 x 80%).

Total Annual Risk Exposure = $5,600,000

Predicted Actual Cost = $4,480,000 ($5,600,000 x 80%)

In this example, ZaneHRA reduces ABC Manufacturing's Annual Risk Exposure by $14,400,000. Additionally, ZaneHRA is predicted to reduce ABC's costs by 20% (or $1,120,000).

*This example is meant as an easy-to-follow illustration for educational purposes only and is not necessarily indicative of actual costs in the market. 


Topics: Individual Health Insurance, Health Reimbursement Arrangement

Additional Resources

Trying to decide which HRA is best for you? Take our quiz to find out.
Get our guide on how to offer health benefits with a small budget.