What is a supplemental health benefit?

Medical costs have risen dramatically in the U.S. over the past several decades. According to a study¹ published by Kalorama Information, the average American pays roughly $1,650 in out-of-pocket healthcare costs for their medical bills. 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 benefits.

To rectify this problem, some employers 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.

While it can reduce employees’ out-of-pocket costs, having several supplemental plans can be expensive and may not give your employees exactly what they need.

This blog will define health insurance supplements, the common expenses they cover, and other options to supplement your group health plan, such as health reimbursement arrangements (HRAs) and employee stipends.

Ready to offer a tax-free supplement to your employer-sponsored group health insurance plan? Learn more about providing an integrated HRA with our guide

What is a health insurance supplement?

Supplemental insurance is an ancillary 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 occurs. Some policies cover services that medical plans don't include, like dental and vision expenses. A supplemental health insurance plan may be worth the cost if you have a diverse workforce with a range of health needs.

Remember 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?

There are other options if you're not looking to purchase supplemental insurance for your entire organization. Your employees can purchase individual supplemental policies to cover their own specific needs based on their 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 medical insurance 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 medical coverage 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, supplemental insurance plans can help. Employers may offer them as a voluntary benefit, or your employees can purchase a plan directly from private insurance companies, an insurance agent, or the health insurance marketplace.

Supplemental insurance can include a variety of policies. Common types of supplement insurance include:

• Dental and vision coverage
• While adult dental and vision insurance is generally not included in group health plans, the Affordable Care Act (ACA) requires all plans to provide coverage for pediatric dental and vision
• Life insurance
• Critical illness insurance
• Also known as disease-specific insurance
• Accidental death and dismemberment insurance
• Provides a lump-sum cash benefit if your employee is a named beneficiary of someone who dies or is severely injured in an accident
• Accident insurance
• Helps pay for medical costs resulting from an accident, including home care services
• Disability insurance
• Hospital indemnity insurance
• Helps pay for hospital confinement costs not generally covered by medical insurance
• Short- and long-term care insurance plans
• Medicare supplement plan or a Medigap plan
• Prescription drug coverage

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

Options to supplement your group health insurance plan

Sometimes, the escalating cost of group health insurance plans leaves 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 benefit option.

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

Excepted benefit HRA

The first supplemental insurance option 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 ACA’s requirements.

While an EBHRA can typically cover any of these eligible expenses, employers can choose which of those expenses they want to cover. Annual contribution limits also bind EBHRAs. The current EBHRA contribution limit 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

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 allows employees to choose the healthcare they need without the employer paying for several supplemental plans.

Group coverage HRA (GCHRA)

Another great option is a GCHRA, also known as an integrated HRA. A GCHRA is a tax-free reimbursement arrangement for employers to supplement their employee's out-of-pocket costs that aren't fully paid for 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:

• Deductibles
• Coinsurance
• Copays
• Other qualified medical expenses

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.

Taxable stipends

your employees can use to purchase their out-of-pocket medical expenses. This contribution is usually provided through monthly allowances added to your employee's regular paycheck and functions like taxable income, but some organizations choose to offer a lump-sum cash benefit.

With most stipends, 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 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
• Commuter benefits and transit costs
• Wellness programs
• Professional development and education
• Housing and meals

With PeopleKeep, you can offer custom employee stipends with ease, including one allowance for all stipend categories you choose. This gives your employees the freedom to choose which expenses are most important to them while you retain complete cost control.

Unlike traditional stipends, your employees submit their eligible expenses for reimbursement. Once you approve their expense for your chosen eligible categories, you can simply pay out their reimbursement up to their monthly allowance on their paycheck. This ensures your employees use their allowances for the intended expenses, such as medical care.

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 and reduce their financial strain.

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 benefits solutions is right for your organization, PeopleKeep can help!

Our personalized benefits administration software makes it easy to set up and manage HRAs and stipends in minutes each month.

Get in touch with a personalized benefits advisor to see how HRAs and stipends can supplement your group health plan

This blog article was originally published on February 23, 2022. It was last updated on November 1, 2022.

1. https://www.fiercehealthcare.com/payer/nationwide-out-pocket-spending-grew-10-to-1-650-per-person-2021-expect-to-continue-through