But that doesn’t mean employers can’t use an HRA to reimburse employees tax-free for out-of-pocket expenses associated with group health plans. The group coverage HRA (GCHRA), sometimes called an Excepted Benefit HRA, does just that. This article discusses three key use cases for a GCHRA.
Switching to a high deductible plan without decreasing plan quality
Many companies just assume that continually increasing premium costs are a foregone conclusion. They either pay more every year or cut benefits to keep costs in check. With a GCHRA, employers can easily restructure their health benefits to reduce premium costs, while keeping employee’s out-of-pocket exposure the same. To do this, a company:
- Increases employee deductible to save on premium costs.
- Adds a GCHRA to cover the increased deductible, keeping employees’ effective coverage the same.
- Save money depending on the allowance they offer and whether employees claim their full allowance.
Example - 20 employee company
In the example below, an employer with 20 employees restructures their group plan to use a GCHRA. The new policy keeps their maximum exposure the same, while making it possible to save costs based on employee utilization. In this example, the employer:
- Increases their group plan’s deductible from $500 to $2,500 to reduce premium costs from $5,000/employee to $3,000/employee. This reduces their premium costs from $100,000 to $60,000.
- Adds a GCHRA that will reimburse employees up to $2,000/yr, which keeps the employer’s maximum possible costs the same as their original policy.
$2,000*20 employees = $40,000
$40,000/yr + $60,000/yr premium = $100,000
- Adds a $500 HRA deductible, which requires employees to pay all expenses up to that point out-of-pocket, as they did with the original policy.
- The employer saves money if they have any employee who does not claim their full allowance.
|Current Policy||New Policy||Savings based on utilization|
|$500 deductible Premium: $100,000/yr.||$2,500 deductible
$2,000 allowance. Employer starts reimbursements after a $500 HRA deductible is met.
Maximum reimbursement exposure:
|$500 effective deductible (reimbursements begin at that point)
Savings based on utilization
35% = $74,000/yr. = 26% savings
50% = $80,000/yr. = 20% savings
100% = $100,000/yr.= break even
Turning a high deductible plan into a high-end health benefit
In the example above, the employer implemented a $500 HRA deductible to keep the effective benefit the same, which would increase the likelihood that employees might not claim reimbursements totaling their full allowance.
An alternate use case for the GCHRA would be to improve their health benefit by reimbursing them for copays and out-of-pocket expenses up front. Any employee who did not have more than $2,000 in expenses in a year would, in effect, have a no deductible plan. Any employee who had more than $2,000 would only have to cover the $500 gap until they met the new policy’s $2,500 deductible.
The employer’s maximum reimbursement exposure and costs remain the same with this scenario. The likelihood of saving costs based on utilization would be lower.
Enhancing a luxury group health benefit package
While the previous use case addresses how to make a high deductible health plan work well for employees, another use case is to layer on reimbursements to an already feature-rich health benefit. For example, an employer might have a group health plan that has a $500 deductible, but then reimburse employees $500/yr. This would essentially give them a benefit where their only effective expenses would be copays and cost sharing once the deductible is met.
By combining a group health plan with a GCHRA, employers take control of their group health plan costs and quality, while ensuring they can offer a health benefit that employees love.