Every year, HR and finance leaders play the lottery when it comes to their health insurance costs. Unpredictable renewal rates on their group plans can wreak havoc on a company’s budget, often causing them to choose less expensive plans that don’t meet the needs of their employees — or pass on the extra expenses to their workforce.
What many of these HR and finance leaders don’t realize is that a bipartisan health insurance program — built off President Obama’s 21st Century Cures Act but expanded through executive order by President Trump — can help companies escape this renewal risk and maintain consistent health insurance costs.
The Health Reimbursement Arrangement (HRA) allows companies to establish a set budget for employees to purchase the insurance plan that best meets their needs on the individual market. From small businesses to large enterprises, HRAs make it possible for HR and finance leaders to stop playing renewal roulette while still providing exceptional health benefits to employees.
How HRAs reshaped employee health insurance
Before the Affordable Care Act passed in 2010, it was common practice for small employers to use HRAs to reimburse employees for health insurance. Unintended consequences of the Act temporarily halted the practice — and even penalized employers who continued reimbursing — until Congress addressed the problem in 2016.
The 21st Century Cures Act, passed by a Republican Congress and signed into law by President Obama, created the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). The benefits plan made it possible for small employers to reimburse employees for individual insurance as long as the employers (and employees) met several strict guidelines.
With QSEHRA gaining traction, the Trump Administration sought to expand the use of HRAs. In 2018, the U.S. Departments of the Treasury, Health and Human Services, and Labor proposed new regulations to expand the usability of HRAs. The rules, finalized in June 2019, created a new type of HRA: the Individual Coverage HRA (ICHRA), available for employers of all sizes.
Both benefits plans are part of a bipartisan push to expand and improve access to healthcare for employees. The ICHRA program, which does not have reimbursement or company size limits, is soaring in popularity. Three million Americans are currently enrolled in an ICHRA, and the Department of Labor projects that number will reach 11 million by 2025.
Switching to an HRA: Pros and cons
As companies receive eye-popping rate increases, HR and finance leaders are eyeing HRAs as an escape hatch from the annual cycle of renewal panic. But the transition from a group plan to ICHRA is a significant shift — one that requires careful planning and proactive communication with employees. Companies must consider several pros and cons:
PRO: Control over costs – Employees who choose an HRA join the country’s largest risk pool — the 20 million Americans who purchase insurance on the individual market. As a result, there is no risk of unexpected price increases due to a difficult diagnosis or specialized care for an employee or one of their dependents.
PRO: Individual plans – Unlike one-size-fits-all group plans, which provide too little coverage for some employees and too much coverage for others, HRAs let employees choose the level of coverage that meets their needs and determine how much they want to pay for health benefits.
CON: Onus on employees – Every employee has to purchase an individual plan themselves, rather than relying on the HR team. Companies need to choose the right partner and technology platform to ensure the transition is seamless.
CON: Short-term stress – The transition can be stressful for HR leaders, but that short-lived pressure prevents the annual risk of a devastating rate increase. Many organizations pay their employees $500 to $1,000 per month for ICHRA plans; when the time comes for renewal, they can continue paying the exact same amount.
Inertia is a powerful force. Some employees enjoy the well-worn security of a group plan and are wary of change. But the status quo is simply untenable for many companies as health insurance costs spiral. From family-owned businesses to large enterprises, employers are taking advantage of an alternative designed by politicians on both sides of the aisle.
The rising tide of HRAs
Although the practice of reimbursing employees for health insurance is well established, the current system of HRAs is relatively new. These benefit plans are only going to get better and deliver more value as more people join the individual market, expanding the risk pool and reducing the cost of plans.
HRAs are even becoming a selling point for employers in recruitment and retention. Beyond the flexibility of individual plans over other employer-sponsored plans, employees can keep their health insurance when they switch between organizations that both offer ICHRA.
Employers and employees, like the two parties in Congress, are finding HRAs a win-win.
Photo: turk_stock_photographer, Getty Images
Jack Hooper is the CEO and co-founder of Take Command, a Dallas-based SaaS company that offers health reimbursement arrangement administration. Jack is a founding member of the HRA Council and has served as Chairman of the Board. He is a graduate of the Wharton School of Business and has been featured in The New York Times, BenefitsPro, Dallas Morning News, Bloomberg, and more. His motto? “Health insurance was never meant to be this complicated.”
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