Raise Employee Pay By Switching To Healthshare Plans and/or Health Reimbursement Arrangements(HRAs)
This article will give business owners some practical, actionable ideas for alternatives to employer health insurance. Reduce your company’s skyrocketing health benefits costs by helping employees switch to money-saving healthshare plans and through innovative uses of health reimbursement arrangements (HRAs).
You and your business could save thousands of dollars per employee per year – while still providing the benefits workers want and need.
Alternatives to Employer Health Insurance
According to a Mercer report, the average per-employee cost of group medical insurance coverage will increase by 5.6% on average per year.
Over the next three years, 70% of employers reported expect “moderate to significant” increases in employee heath, according to Willis Tower Watson.
Meanwhile, the unsubsidized cost of Affordable Care Act Marketplace plans is increasing by around 10%, according to the Kaiser Family Foundation.
As renewal season approaches, many employers are pulling out the green eyeshades, looking for ways to reduce health care expenditures – without leaving employees hanging out to dry.
Small businesses are already floundering. And lower-income families are struggling even more.
Employers in higher-wage industries and less labor-intensive sectors have some wiggle room. Their employees can handle some additional cost sharing, if need be.
But employers in lower-wage industries and their employees are caught in a suffocating affordability squeeze: Households under 200 percent of the federal poverty line already spend a whopping 62 percent of their discretionary incomes on healthcare costs, including insurance premiums, deductibles, co-pays, OTC medications, and other out-of-pocket expenses.
If we don’t do something to change course, lower-wage workers may wind up spending 70 to 75% of their discretionary income on medical expenses, according to a McKinsey study.
Medical expenses aren’t very discretionary.
And as far as employers are concerned, the passage of the Affordable Care Act nearly 13 years ago didn’t make health insurance very affordable for employers at all.
Clearly, reliance on the traditional employer-based group health insurance model isn’t working. It’s just not sustainable for many employers, nor workers, who are seeing their share of premiums, deductibles, and co-pays rise year after year.
As costs continue to rise, many employers have found a better way.
Alternatives to Employer Health Insurance Solution: Walk Away From Group Health
One solution: Ditch the group health plan altogether. Instead, many companies are empowering their employees to make their own decisions. In lieu of a group health insurance plan, they’re giving their employees the cash they need to choose and purchase the insurance coverage of their choice.
Why does that make sense? Because as long as their employer does not offer a group health plan, workers may qualify for big subsidies when they buy their own plans as individuals.
With traditional group health insurance plans, in contrast, employers and their workers must pay the entire cost.
When you migrate employees from group health plans to the individual marketplace, you are also effectively shifting much of the costs from your own books and from your own employees back to the government.
Taking Advantage of ACA Individual Health Insurance Subsidies
Last year’s American Rescue Plan act and this year’s Inflation Reduction Act expanded the number of households who can qualify for a Affordable Care Act subsidy to help them pay health insurance premiums.
These subsidies – technically called Advance Premium Tax Credits – actually help make health insurance much more affordable for many people.
Furthermore, the Biden Administration recently changed the way eligibility for these credits is calculated. Under the old rules, eligibility phased out at 400% of the federal poverty line. This effectively meant a family of four with a household adjusted gross income of $106,000 was ineligible.
The government recently lifted that income cap. Now households can generally qualify for a subsidy to the extent that the total health insurance premiums for a benchmark silver policy in a given area exceed 8.5 percent of income.
Today, the U.S. Department of Health estimates that nearly 80% of households qualify for a subsidy to help them pay for an individual Marketplace health insurance policy.
So employers of lower and middle-income workers have an opportunity to extend a terrific safety net to most employees and their families – And save a lot of money at the same time…
…By dropping group health.
With Alternatives to Employer Health Insurance, You Can Give Your Workers A Raise!
Instead, they are simply providing the cash workers need to buy the health plan of their own choosing, whether it’s an Affordable Care Act plan with a subsidy or a low-cost healthsharing membership.
In most industries, the vast majority of workers’ households would pay much less for a subsidized ACA policy than they do for the employee contribution to your group plan.
This can be a win-win for both employers and employees alike:
- Employers get some relief from the high cost of sponsoring a group health insurance plan.
- Workers are empowered to choose their own health insurance plan, based on their own, specific situation.
Compare Pricing on the Best Healthshare Plans Available
Another alternative to employer health Insurance many small businesses are turning to is health sharing memberships.
Health sharing is a cost-saving alternative to conventional insurance solutions. but it is not insurance. It’s a voluntary association of people who share the same values who have agreed to share each other’s medical bills.
Risks that are too great for any one person or family to bear are thus spread among the entire membership.
Because health sharing ministry organizations are not insurance companies, they are free to turn down people with pre-existing conditions, or to impose waiting periods on costs associated with pre-existing conditions and surgeries.
These waiting periods generally range from 12 to 36 months. Some plans also place dollar amount caps on expense sharing related to pre-existing conditions.
They can also exclude expenses that insurance companies must accept, such as gender reassignment surgery, drug rehab costs, or injuries received while driving drunk or under the influence of drugs.
But healthsharing members and employers often like these exclusions: Because of these and other restrictions, healthshare plans tend to attract healthy members who live responsible lifestyles.
As a result, healthshare plans typically cost 30% to 50% less per member per month than a traditional group insurance policy, or for an unsubsidized ACA Marketplace policy.
One caveat: unlike with health insurance which is a tax-free benefit to the employee, health sharing memberships provided to your employees would be taxed the same as other employee pay.
But savings are so significant with heathsharing plans compared to group health policies that for workers who are in good health, it makes solid fiscal sense, even without the tax deductions.
Get Government Out of Employee Health Care
Healthsharing involves much less government regulation or intrusion than group health insurance – especially after the ACA.
There are no minimum contribution amounts for healthsharing, no participation requirements, and no minimum number of employees.
You can choose how much to contribute, and to which employees. You can pick up the entire healthsharing cost (still just a fraction of overall traditional health insurance costs per-employee), or you can split it with your employees however it makes sense for your organization.
Healthsharing also gives employers and their benefits advisors much more flexibility in designing health care packages. There are many healthsharing plans available with different benefits and structures.
At HSA for America, we can work with you to structure your benefits to include the set of benefits and products that make sense for your organization.
By helping you select the most appropriate healthsharing plan, and combining your healthsharing with other innovative benefits such as Direct Primary Care and voluntary benefits, you can address the needs your workers feel are the most crucial. Examples include:
- Catastrophic care for high-cost events like surgery and hospitalization
- Primary care doctor visits (via direct primary care)
- Prescription drugs
- Preventative care
- Maternity benefits
- Medical supplies
- Discounts on labs, imagery, and other services
- Occupational and physical therapy
- Alternative treatments
The exact set of benefits will depend on the plan, or combination of plans, that you choose, or that your employees choose if they buy coverage as individuals.
Healthsharing Has No Network Restrictions
Unlike group health HMOs and PPOs, healthsharing plans typically don’t restrict members to narrow care networks.
Members can use their benefits with any provider. The healthshare plan will help them negotiate pricing.
Often, healthsharing members receive steeply discounted pricing as cash payers. Which is a big help for families who haven’t yet spent enough to meet their member responsibility amount for the year.
Healthsharing Members Don’t Get ACA Subsidies (Just Lower Costs in the First Place)
However, healthsharing plans don’t qualify for advance premium tax credits on the state health insurance exchanges, like traditional health insurance plans do, for most people.
But they are powerful, cost-saving solutions for more highly-paid households who don’t qualify for an ACA subsidy because of their incomes, and for small businesses that need a more affordable way to provide health benefits.
Use an HRA To Help Employees Afford Their Own Plans
Naturally, if you’re going to take away a group health benefit and expect employees to stay, they’ll need some help affording the cost of coverage in the individual market.
That’s where the health reimbursement arrangement (HRA) comes in: The HRA allows employers to use tax-free dollars to reimburse workers for out-of-pocket health costs – including the cost of buying their own health insurance.
So your business can take the money you’re already paying for group health plans, and use it to fund HRAs.
However, if employees receive HRA benefits, they can purchase their own individual health insurance, but they will not qualify for an Affordable Care Act subsidy.
Or, Use Salary Plus-Ups or Health Stipends
Alternatively, you can skip the HRA and simply pay people more – either by establishing a health care stipend based on individual plan costs, or by simply boosting salary or hourly pay.
The primary disadvantage of this method is lower tax efficiency: costs are still deductible to the employer as compensation, but taxable to the employee as ordinary income.
The higher your employees’ tax bracket, the bigger factor the additional income tax is going to be.
Employers who use the stipend/plus-up method often add an additional amount to “top off” employees’ pay to account for the added taxes.
Employers should also factor in additional FICA, FUTA, and state taxes, as well.
This can be a great solution for lower- and middle-income workers who qualify for a significant ACA subsidy. If there’s no HRA in the picture, they can buy whatever insurance policy they want -– at a significant discount, thanks to the subsidy.
The advantage of providing a raise instead of an HRA, is that the government places no strings on this money whatsoever. Employeers are free to use the extra cash however they like. They can even buy an ACA-qualified health insurance plan (and get subsidies if they qualify), or join a healthsharing membership.
What About Workers With Pre-existing Conditions?
Healthsharing is great for relatively healthy workers – especially if they don’t qualify for a premium tax credit for an Affordable Care Act plan.
But what about people who do have pre-existing conditions? Healthsharing wouldn’t work for them, because of the waiting period before bills to treat these conditions become shareable. If your company drops your group health plan entirely, how do you cover them?
One solution is to have your workers without pre-existing conditions in their families enroll in health sharing plans. They don’t have to worry about waiting periods, and you can take advantage of the lower costs in healthsharing.
Meanwhile, you can provide an HRA for your workers who have pre-existing conditions in their families. This provides them tax-free money they can use to purchase a traditional health insurance plan that will cover their pre-existing conditions with no waiting period.
Types of HRAs
Qualified small employer HRA (QSEHRA).
These arrangements are designed for businesses with fewer than 50 full-time equivalents (FTEs), and that don’t offer a group health insurance plan.
If you drop group health, and have fewer than 50 FTEs, your business will qualify for a QSEHRA.
To use a QSEHRA, workers must have a health insurance policy. They don’t work with most healthsharing plans, under current law.
Due to contribution limits, QSEHRAs aren’t designed to handle major medical expenses. That’s what the insurance is for.
But QSEHRAs are very effective at providing tax-free cash for workers to pay deductibles, co-insurance amounts, copays, prescription drugs, and other expenses that would otherwise have to come out of pocket.
The catch: If an employee receives an HRA benefit, and a premium tax credit subsidy for an ACA Marketplace plan, the government will reduce that subsidy dollar-for-dollar for every dollar they receive in an HRA.
Also, workers under a QSEHRA plan can’t “opt out” and go with the full subsidy amount, instead.
Individual coverage HRA (ICHRA)
Like the QSEHRA, the ICHRA allows employers to provide tax-free cash to help workers pay eligible healthcare expenses.
There are some key differences, however:
- Employers of any size can offer ICHRAs to their workers. There’s no 49-FTE cap.
- There are no contribution limits
- Employers can discriminate based on employee classes.
Again, these HRAs can only be used for workers who are enrolled in a qualifying health plan, such as an ACA Marketplace individual or family health plan. Healthsharing generally does not qualify.
ICHRA participants are not eligible for ACA premium tax credits. But if the potential credit is bigger than the ICHRA benefit, the employer can potentially opt out of the ICHRA to take advantage of the subsidy, if certain conditions apply.
Frequently Asked Questions about HRAs
If an employee leaves the company, who keeps unused HRA contributions?
If an employee leaves service with unspent money in his or her HRA, the unused balance remains with the company. The plan and the assets normally remain company-owned until actually disbursed.
However, if you wish, you can create an HRA with plan documents that allow employees to use HRA funds for a specific period of time. If you have questions about plan design, make a free consultation appointment with an HSA For America Personal Benefits Manager.
When do employers deposit HRA funds?
Since HRAs are employer-owned, employers can set their own deposit schedules. You can create a plan that deposits HRA funds to employee control annually, quarterly, monthly, and even weekly.
Or you can choose no set deposit schedule at all, and simply disburse funds when you receive qualified claims.
Can employees contribute to an HRA?
No. By law, HRAs are employer-funded. employees are forbidden from making contributions to a company HRA plan.
How much can an employer contribute to an HRA in 2023?
That depends on the type of HRA. For QSEHRAs, the company may contribute up to $5,850 for self-only employees and $11,800 for employees with families. If you’re making monthly contributions, that works out to a maximum of $487.50 for single employees and $983.33 per month for employees with families.
If you have an ICHRA, there is no maximum contribution. Employers can offer any amount in an ICHRA.
Do HRA balances roll over from year to year?
Potentially, yes. However, since QSEHRAs have an annual benefit cap, the total available benefit to the employee cannot exceed the annual cap at any given time.
Can the employer prohibit reimbursement for specific treatments?
Yes. HRAs are 100 percent employer-owned and controlled. As the employer, you can prohibit reimbursement for any procedures or services you like in your plan documents – even if the IRS says these treatments are authorized for reimbursement in Publication 502.
What expenses are not eligible for HRA money?
Employees cannot use Health Reimbursement Arrangement money to pay for any of the following treatments and services:
- HSA contributions
- FSA contributions
- Cosmetic surgery or other procedures not directly intended to treat a specific diagnosis or impairment of normal function
- Childcare and babysitting services (except as medically necessary to treat a baby for a specific diagnosis)
- Diaper services
- Dancing lessons
- Medical care that has not been provided yet
- Housekeeping assistance
- Operations and treatments that are prohibited by law
- Health insurance premiums
- Long term care insurance premiums
- Maternity clothes
- Medicines and drugs from other countries
- Swimming lessons
- Veterinary fees
- Weight loss programs
- You can read more details on what expenses are and are not eligible for reimbursement under an HRA program in IRS Publication 502 – Medical and Dental Expenses.
Healthsharing and Direct Primary Care
Healthsharing is at its most efficient when it focuses on catastrophic expenses. But many employees need help covering routine care. Often, lower-wage employees enrolled in traditional health insurance plans put off getting needed care for themselves or their families because of high deductibles and copays.
Or they can’t afford to take the time off work to go to the doctor.
But healthsharing plans pair very well with Direct Primary Care plans – an innovative solution that makes it easy for workers to get the routine and preventative care they need.
This just leads to bigger expenses and lost productivity in the long run… or worse.
For a low, predictable monthly “subscription,” your workers and their families can see their primary care doctor as often as they need to.
No deductibles. No copays.
And because they get unlimited telehealth visits, they also don’t need to take time off work to see their doctor.
Because Direct Primary Care doctors don’t take insurance, they don’t have to maintain a small army of billing specialists. And they don’t have to spend their time documenting care for the benefit of outside insurance companies.
They also have lower break even points, and can carry a much lower patient load. Doctors can spend less time doing paperwork, and rushing from one patient to another, and spend more time face to face with patients.
DPC members enjoy a much better healthcare experience and better health outcomes.
And it also eliminates a substantial barrier between patients and access to the healthcare system.
Communication is Key
When you drop group health and offer an HRA or healthsharing instead, you should make sure your workers know that you’re not reducing their benefits. In fact, you’re expanding them, by reducing their net out of pocket costs, giving them more choice, and putting more money in their pockets for them to control themselves.
This will require a concerted effort to communicate the benefits of this new paradigm, and help workers not only see the value in it, but to see how they can use these benefits to their maximum effect.
Alternatives to Employer Health Insurance Implementation Tips
- Don’t take employees by surprise. When you drop group health, workers will have 60 days to line up their own ACA coverage and qualify for a subsidy. Give them advance notice so that they have plenty of time to research and choose healthsharing, or a health insurance plan to buy with their HRA money.
- Ask your prior group insurance plan for proof of cancellation. So your workers can easily prove eligibility for a special enrollment period.
- Provide expert help for your employees. Most won’t know what a healthsharing plan is and why they are different from health insurance. They’ll also need some education about how an HRA works, and how it helps empower them to make more of their own dedicisions about their medical care. Department of Labor safe harbor rules allow employers to line up expert coaching and education for employees without exposing themselves to liability.
- Large employers (50 or more full-time equivalents) may have to pay a shared responsibility penalty if they drop group health in favor of healthsharing. But the savings are often worth it, even with the shared responsibility penalty.
- Small employers may have to give up an Affordable Care Act Tax Credit that offsets up to half the cost of sponsoring a group health plan. So speak with your tax advisor about how that might affect you.
How To Get Started
If you’re tired of seeing your profitability and competitiveness go up in smoke because of crippling health insurance costs, or watching the workers you rely on forced to put off the care they need because they can’t afford to see a doctor, we’re here to help you explore a better option.
By combining HRAs with access to healthsharing plans, direct primary care, and the judicious use of voluntary benefits products like hospital and accident insurance, critical illness insurance, and the like, you can cut costs, improve access to care, put more money in workers’ pockets, and employer your employees to take control of their own healthcare.
To schedule a free, no-obligation consultation and analysis, just click here, and make an appointment with one of our experienced personal benefits managers.
Meanwhile, to enable us to do our best work, we recommend putting together an employee census, with workers’ age, family members that may join the plan and their ages, employment status/class, smoking status, and any other relevant information you’re aware of. Submit your census and request a quote below:
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Here are some additional pages related to this article: 2023 Complete Guide to Small Business Healthcare Plans | Health Insurance for Small Business Owners: A 2023 comprehensive guide to getting health insurance for small business owners
Whitney Kline is a Personal Benefits Manager (PBM) for HSA for America. As a PBM, she helps individuals and small businesses find money-saving alternatives to traditional health insurance – including HSA plans, health sharing programs, DPC memberships, and other innovative solutions.