Healthcare benefits are a necessity for attracting top talent and complying with government regulations. However, the rising costs of traditional group health plans have made it challenging for employers to provide comprehensive coverage. This article will explain why more modern businesses are switching over to health reimbursement arrangements (HRAs) and making the most of innovative employee health benefits software.

What Is Traditional Group Health Insurance?

Traditional group health insurance involves an employer purchasing a single health insurance plan or offering a limited number of options to employees. Employers typically contribute a portion of the monthly premium costs, and employees pay the remainder. The coverage is uniform across the workforce, meaning everyone gets the same plan or options to choose from.

What Are Health Reimbursement Arrangements (HRAs)?

HRAs are employer accounts that reimburse employees for qualified medical expenses. HRAs allow employees to pick their own healthcare coverage, and employers reimburse them for eligible expenses. There are different types of HRAs, but the most common is the individual coverage HRA (ICHRA), which allows employees to purchase individual insurance coverage and then get reimbursed by their employers.

HRAs vs. Traditional Group Health Insurance

Flexibility

With traditional group health plans, employees are given a small selection of plans, and all employees must choose from the same limited options. This one-size-fits-all approach often leads to dissatisfaction as it does not accommodate the individual health circumstances and preferences of employees.

In contrast, HRAs offer much more flexibility. Employers have the freedom to decide how much money to contribute and which expenses are eligible for reimbursement. Employees, in turn, can use these funds to purchase individual insurance plans or cover healthcare expenses that best meet their unique needs. This flexibility is very beneficial in a diverse workforce where employees may have different healthcare needs.

Cost Control

With the rising cost of group health insurance becoming a major concern, controlling healthcare costs is a top priority for businesses. These premium increases are often unpredictable and can significantly impact a company’s bottom line. Additionally, the employer often has to cover a substantial portion of the premium, limiting flexibility in managing costs.

This is where HRAs truly shine. With an HRA, employers simply set a fixed amount of money that they will contribute to each employee’s healthcare plan. This predictability allows businesses to manage their healthcare budgets without worrying about unexpected premium hikes from insurance providers. Since the employer is not directly purchasing insurance, they are not tied to escalating costs of group health insurance premiums.

Tax Advantages

Contributions made by employers to an HRA are tax-deductible for the company, and the reimbursements employees receive are not considered taxable income. This is a win-win situation as both parties benefit from tax savings. Furthermore, since the employer is not paying payroll taxes on the HRA contributions, this can further reduce costs.

While group health insurance premiums paid by employers are also tax-deductible, employees must still pay their share of the premiums with pre-tax dollars. However, group health insurance does not offer the same flexibility for controlling how much the employer contributes, meaning that employees cannot adjust their contributions as easily as with an HRA.

Compliance with Regulations

Both HRAs and traditional group health insurance must comply with government regulations under the Affordable Care Act (ACA). However, HRAs offer more flexibility in maintaining compliance. HRAs, especially ICHRAs, are designed to work in tandem with individual health insurance, making it easier for employers to meet the ACA’s employer mandate.

Conversely, traditional group health insurance plans must adhere to the ACA’s requirements for employer-sponsored coverage, which can be more complex and restrictive, especially for smaller businesses. Employers must offer a qualifying health plan that meets the minimum essential coverage requirements, and any deviation can result in hefty fines.

Employee Satisfaction

Last but not least, offering benefits that employees truly value can make a difference in retaining and attracting talent. HRAs give employees the power to choose their healthcare plan, which leads to greater employee satisfaction. For instance, a young, healthy employee might prefer a high-deductible plan with lower premiums, while an older employee with a chronic condition may opt for a more comprehensive plan.

Meanwhile, traditional group health plans often frustrate employees because they are unable to choose coverage that best meets their needs. Employees with specific medical requirements may find the available plans lacking, while those in good health and who rarely use healthcare services may feel they are overpaying for coverage that they do not need.

Conclusion: Why Are HRAs Better?

With healthcare costs increasing every year, employers need to find ways to provide quality benefits while keeping spending under control. As a solution that offers flexibility, cost control, and employee satisfaction, health reimbursement arrangements check all these boxes and more.

While traditional group health insurance still has its place, for instance, in companies with a large and homogeneous workforce, HRAs are a more attractive option for small to medium-sized businesses that seek to empower their employees to make personalized healthcare choices.

Even better, it is easy to switch to an HRA from existing group health insurance. Employee health benefit consultants and software can seamlessly administer HRAs based on your set budget. So, if you are ready to start saving money and serving your employees better, explore the benefits of an HRA today.