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What is a supplemental health benefit?

Written by: Elizabeth Walker
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Published on February 23, 2022.

Medical costs have risen dramatically in the U.S. over the past several decades. According to a recent study, the average American pays roughly $1,650 in out-of-pocket healthcare costs. Many employees are discovering their employer-sponsored health insurance plan just isn’t enough on its own, forcing employers to look at the gaps in their health benefit.

To rectify this problem, some employers choose to buy one or more supplemental health insurance policies to complement their health insurance plan. Supplemental insurance helps employees pay for healthcare costs that group health insurance plans don't cover.

But having several supplemental plans can be expensive and may not give your employees exactly what they need.

In this blog, we’ll define health insurance supplements, the common expenses they cover, and other options to supplement your group health plan, such as:

What is a health insurance supplement?

Supplemental insurance is an extra benefit that you can purchase to help your employees pay for services and out-of-pocket expenses that aren't fully covered by your group plan. These policies can help provide your employees with peace of mind when the unexpected happens.

Some supplemental insurance policies help pay for out-of-pocket cost-sharing expenses, such as copays and deductibles, when a serious illness or accident happens. Some policies cover services that medical plans don’t include, like dental and vision. If you have a diverse workforce with a range of health needs, a supplemental health insurance plan may be worth the cost.

Keep in mind that supplemental plans aren’t a substitute for comprehensive health coverage, because most supplemental plans don’t meet minimum essential coverage (MEC). But they are a good solution if you want to provide limited benefits for specific preventive treatments, critical illnesses, or health conditions to help your employees in their time of need.

Can employees purchase their own health insurance supplement?

If you’re not looking to purchase supplemental insurance for your entire company, that’s okay too. Your employees can purchase individual supplemental policies that they need to cover their own specific needs based on their own circumstances. Depending on the type of plan they want, they may not need to wait until the annual open enrollment period to purchase their supplemental plan.

For example, if you have a lot of older employees, they may be interested in supplementing their group health plan with Medicare. Medicare supplement plans, or Medigap policies, are health insurance policies that limit the amount people over 65 will pay for medical services once they are on Medicare. These plans work with their original Medicare Part A and Medicare Part B to help them pay for out-of-pocket costs that aren’t covered.

Recommending individual supplemental health insurance and Medicare supplement insurance plans to your workforce is a cost-effective solution for your business and a customized alternative for your employees.

What are the common expenses covered with health insurance supplements?

If costly life expenses pop up for your employees, a supplemental health insurance policy can help. Employers may offer them as a voluntary benefit, or your employees can purchase a plan directly from an outside insurance company or the health insurance marketplace.

Supplemental insurance includes a variety of policies, including:

  • Dental and vision coverage
  • Life insurance
  • Critical illness insurance
  • Accidental death and dismemberment insurance
  • Hospital indemnity insurance
  • Short and long term care insurance plans
  • Medicare supplement plan, or a Medigap plan

You can also have supplemental health plans for specific critical illnesses, such as cancer, stroke, or kidney failure. Other less common policy types may help pay for food, medicine, transportation, and other expenses related to an illness or injury.

Options to supplement your group health insurance plan

Sometimes, the escalating cost of group health insurance plans leaves some employers feeling like they have to settle for less comprehensive coverage with many separate supplement plans. If you’re finding supplemental health insurance doesn’t cover what you need, or is out of your budget, it could be time to look for another option.

The good news is that employers can instead bundle their group health insurance coverage with a tax-advantaged health reimbursement arrangement (HRAs), like an excepted benefit HRA (EBHRA) or group coverage HRA (GCHRA), or a taxable stipend. We’ll discuss each option below so you can have a better idea of which one may work for your business.

Excepted benefit HRA

The first one we’ll go over is the EBHRA. EBHRAs enable employers of all sizes to reimburse their employees tax-free for healthcare expenses and excepted premium benefits, meaning benefits exempt from the Affordable Care Act’s (ACA) requirements.

While an EBHRA can typically cover any of these eligible expenses, employers can choose which of those expenses they want to cover. EBHRAs are also bound by annual contribution limits. The current EBHRA contribution limit that employers can offer is $1,800 per year.

Other reimbursable expenses under an EBHRA include:

  • Limited scope vision and dental insurance
  • COBRA continuation
  • Cost-sharing of co-pays, deductibles, and other eligible medical expenses
  • Short term limited-duration insurance premiums
  • Long term care coverage

Also, an EBHRA must be offered alongside an employer-sponsored group health plan that meets MEC. However, employees don’t have to enroll in the employer’s group health plan to participate in the EBHRA benefit. This gives employees the flexibility to choose the healthcare they need without the employer paying for several different supplemental plans.

Group coverage HRA (GCHRA)

Another great option is a GCHRA. A GCHRA is a tax-free reimbursement arrangement for employers to supplement their employee’s out-of-pocket costs that aren’t fully covered in their group health insurance plan.

Employers can customize restrictions regarding what their GCHRA can reimburse. This helps employers take greater charge of their budget while allowing their employees to enjoy affordable premiums and flexible reimbursements.

Employers set a monthly allowance for employees to use each month toward out-of-pocket expenses, such as:

Like the EBHRA, employers with GCHRAs must provide a group coverage plan that meets MEC. But unlike EBHRAs, employees must be enrolled in the employer’s group health plan to participate. They also come with no contribution limits, so employers can give their employees as much or as little money as they choose. Lastly, unlike EBHRAs, GCHRA funds can’t reimburse insurance premiums.

Find out more differences between a GCHRA and an EBHRA in our blog!

Taxable stipends

Your last option is a stipend. A health insurance stipend is a fixed amount of money that your employees can use to purchase their out-of-pocket medical expenses. In most cases, this contribution is added to your employee’s regular paycheck and functions like taxable income.

With a stipend, there’s no requirement that your employees must use this additional money to purchase healthcare costs. They are much less regulated, unlike HRAs, and more flexible and easier to administer.

But that also means employers can pick what kind of stipend they want to offer. If you’re content with the group health insurance plan that you currently offer, you might want to go with a non-health related stipend as a bonus.

You can offer a stipend to go towards anything you choose, but some popular options include:

  • Remote work expenses, like internet, cell phones, and office equipment
  • Traveling
  • Wellness programs
  • Professional development
  • Housing and meals
  • Continuing education

Stipends are becoming increasingly popular in today’s work climate because they can improve workplace culture and the employee experience. They help employers put the money and choice in the hands of employees, so they can get the perks they want most.

Learn more strategies to retain your best employees and recruit top talent in our guide

Conclusion

Supplemental health coverage can be a valuable addition to a major medical plan. It may cover some or all of your employees’ out-of-pocket costs or provide coverage for services that aren't covered by your major medical plan, such as dental and vision care. But supplemental health insurance can be limited and costly, so it’s essential to consider all your options.

Supplemental health benefits, such as a GCHRA or a taxable stipend, can provide an all-in-one solution to boost your group health insurance plan. If you think one of these personalized benefit solutions is right for your company, contact our team and we’ll get you started!

Originally published on February 23, 2022. Last updated February 23, 2022.
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