When it comes to offering health benefits to your employees, the traditional choice is a group health insurance plan. However, health reimbursement arrangements (HRAs) are also growing in popularity among employers, and they come with a lot of lesser-known perks.
So how do you know which is best for your organization?
In this article, we’ll help you explore the pros and cons of both group health insurance plans and HRAs, as well as introduce you to a special HRA designed to work alongside a group health plan.
All about group health insurance
A group health insurance plan is what you usually think of when an employer offers an insurance policy to their employees.
With a group health plan, an employer will choose one insurance plan for all of their employees to participate in, and enrolled employees will pay a monthly premium to maintain coverage.
Typically there’s a deductible participants need to meet before their coinsurance is applied, as well as an out-of-pocket maximum that participants must meet before the insurance will cover anything.
Advantages of group health insurance
One of the biggest reasons employers choose traditional group health plans is because their employees are familiar with them. The Kaiser Family Foundation (KFF) finds that nearly half of Americans are covered through an employer-sponsored group health plan, so it’s generally what employees expect.
Additionally, it’s easy to find an insurance broker willing to help employers purchase a group insurance policy. Brokers are generally knowledgeable about insurance and can walk you through your enrollment documents.
Finally, employees like that their employer pays for a portion of the insurance to reduce their overall insurance cost. According to KFF, the average percent of health insurance paid by employers in 2019 was 82% for single coverage and 70% for family coverage.
Disadvantages of group health insurance
While employees covered through a group health plan are generally grateful for the coverage, they don’t get much choice in the matter. Group insurance is chosen by the employer, so employees don’t have any say in what network they’ll have available, the deductible they’ll need to meet, or the premium they’ll have to pay.
On the employer’s side of things, group health plans are expensive—especially for small employers. The average cost of group health insurance has increased in recent years, and is expected to continue to rise. Not to mention employers are subject to annual rate hikes every year the plan is due for renewal.
What’s more, group health plans often have minimum contribution and participation requirements. So if you don’t have enough employees in your organization, or not enough who want to participate, you won’t be able to offer a group health plan at all.
All about health reimbursement arrangements (HRAs)
An HRA is an IRS-approved, employer-funded health benefit used to reimburse employees, tax-free, for out-of-pocket medical expenses and personal health insurance premiums.
Employers simply offer a monthly allowance to their employees, then their employees go out and purchase the individual health insurance and healthcare expenses that make sense for them and their families.
After the employer verifies their purchase, they reimburse their employees up to their allowance amount. Any unused allowance at the end of the year goes back to the employer.
Advantages of HRAs
As an employer, the biggest advantage of an HRA is the cost. With an HRA, you get to decide how much of an allowance to offer your employees, giving you a fixed cost you can count on and budget for every year—with no annual rate hikes!
What’s more, HRAs are simple and inclusive, with a unique type available for organizations of every size and budget. When you use a software administration software like PeopleKeep, you’ll only need about five minutes a month to administer the benefit.
For your employees, they get a personalized, flexible benefit that meets their unique healthcare needs. Unlike a group health plan, an HRA allows each employee to use the benefit differently and personally choose an individual insurance plan that works for them.
Disadvantages of HRAs
While HRAs are growing in popularity, your employees are likely unfamiliar with them. You’ll need to make sure they’re properly educated on how the benefit works, what expenses qualify, and where to shop for an individual health plan.
As far as employers are concerned, organization owners may not be able to participate in their HRA, depending on the type of organization they run. For example, C-corporation owners are able to fully participate in their HRA, but S-corporation owners are not.
Using group health insurance and an HRA together
If you have the budget to offer a traditional group plan, but also like the personalized benefit of an HRA, the group coverage HRA (GCHRA) is a special type of HRA that’s specifically designed to work alongside a group health plan.
The GCHRA, often called an integrated HRA, is a reimbursement arrangement between an employer and their employees to help pay for the out-of-pocket costs that aren’t covered in the group health insurance plan.
Unlike a traditional integrated HRA, employers aren’t restricted to compatible plans through any individual provider. Plus they can keep their HRA even if they change insurance providers.
In addition, offering a group health plan alongside a GCHRA can help bridge the gap between offering a group plan and minimizing premium costs.
No matter what kind of organization you run—big or small—your employees will generally expect employer-provided healthcare benefits. Now that you know the advantages and disadvantages of your options, you’re ready to make an informed decision about what kind of health insurance plan is best for your organization.