When to Offer Group Coverage and When to Offer HRA – Zupnick Associates

(by Andres Rojas)

 

Whether they’re HMOs, PPOs, or ICHRAs, the healthcare market offers you a sea of limitless options. However, when it comes to choosing an employer-based plan, there are really only two options on the table: group health insurance plans and health reimbursement arrangements (HRA).

 

While group health plans have traditionally been the backbone of many employers’ employee benefits programs, the flexibility of HRAs makes them an attractive asset for businesses of all sizes. 

 

Both options come with widely different costs and eligibility requirements of their own, though. So if you’re confused about which you should choose, keep reading below to find what type of employer-based plan works best for your company.

Benefits of Group Coverage

Group health plans are health insurance policies bought by employers for their workers. Although companies of all sizes can buy them, offering group health is mandatory for any business with 50 or more employees.

 

Group plans have many advantages over individual plans, such as:

Low membership costs 

In most states, group plans are required to include at least 70% of a company’s eligible workers – that is, employees without another source of coverage. Having a large member pool means that both the risks of insuring and the cost of the premiums are spread around a group of individuals. 

Comprehensive coverage 

Since group plans benefit from having a large pool of members, workers can extend coverage to their family members for an extra cost. This in turn means companies can offer more and better services to their employees without having to raise the price tag.

Inclusive pre-existing condition coverage

Individuals typically considered ‘risky’ by individual health insurance policies (patients with chronic health conditions, senior citizens, pregnant women, etc) can get the medical services they need in a group plan.

Tax incentives 

Besides giving HR an excellent recruiting tool, small businesses that offer group health plans can get compensated for paying out part of their workers’ premiums with a small business health care tax credit

Benefits of a Health Reimbursement Arrangement (HRA)

Despite their many advantages, group plans aren’t perfect. Indeed, their complexity, centrally managed nature, and unpredictable costs that tend to rise every year make them an unpleasant choice for many employers. 

 

As for employees, the one-size-fits-all approach of group plans leaves them no way of upgrading or customizing their health coverage. And here is where Health Reimbursement Arrangements come in handy.

HRAs allow employees to shop around for the best options

Unlike group plans, HRAs have fixed annual costs and aren’t tied to a specific network of health providers. Instead, they are accounts where employers deposit tax-free money that workers can use to reimburse their health expenses. 

 

This means that employees are free to shop around for health coverage and enroll on the individual policy of their choosing. Whether it’s paying their monthly premiums or covering out drug costs, HRAs can plug any gap not covered by a health insurance policy.

HRAs give businesses more control over their health benefits

While a Qualified Small Employer HRA (QSEHRA) only allows a fixed allowance for employees (and their dependents), Individual Coverage HRA (ICHRA) has no allowance caps. 

 

ICHRAs give employers the flexibility to vary the size of their allowances based on employee classes while also allowing employees to choose the option that works best for them.

Benefits of Including Both in Your Employer-Based Plan

Although group coverage and HRAs are separate things, the truth is that they work even better together than on their own – provided that the company is big enough to cover the costs. 

 

Group plans, for example, offer an excellent range of services that most employees will find satisfying. Adding an HRA plan to the mix will cover any gaps left by a company’s HMO or PPO group plan.

 

Larger companies that have the means to offer group health coverage often pair these benefits with a group coverage HRA (GCHRA) – also known as an integrated HRA. 

 

GCHRAs are reimbursement arrangements designed to cover out-of-pocket expenses not covered by a group health insurance policy. Besides increasing employees’ health choices, GCHRAs can minimize both group coverage premiums and deductible costs.

The Bottom Line

When it comes to deciding whether group coverage is better than HRAs, the answer is, “it depends.” 

 

Remember that the right choice will always be the one that meets your company’s goals and budget. So make sure you talk to a trusted insurance broker before making any decision, and if you have any questions, please contact us.

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