Emerging EB Business Insights
Reduce Health Plan Spending Without Impacting Benefits
SEPTEMBER 3, 2024
Offering benefits is a key strategy to attract and retain employees, but as the cost of health insurance continues to rise, many businesses will struggle to provide affordable, competitive benefits.
While most brokers will recommend raising co-pays and deductibles, this only addresses rising premiums and doesn’t consider how it would impact employees. Smaller businesses already struggling to find workers need to find a sustainable way to control health plan costs.
One of the strategies USI Insurance Services looks at to reduce costs without impacting benefits is level funding — a self-funded strategy that allows that allows employers to pay a fixed monthly premium to the insurance company for claims administration and payment. Plans that run better than expected may see a return on premium.
Employers often see savings up front by switching from a fully insured health plan to a level-funded one. If you’ve already explored level funding, but determined your health plan is not a good fit, you may still be able to reduce health plan costs by adjusting your plan design.
Switching to a High-Deductible Health Plan Can Reduce Costs
Many fully insured employers switch from a traditional preferred provider organization (PPO) plan to a high-deductible health plan (HDHP) to reduce benefits spending. This transfers the cost of risk to the employees, who pay for more healthcare expenses out-of-pocket (OOP) before insurance pays its share.
Switching from a traditional PPO to an HDHP can reduce fixed insurance costs by 25% to 30%.
While this can reduce health plan costs for employers, employees who are used to a gold-level plan — featuring a higher premium in exchange for a lower cost of service — may not be thrilled to be responsible for OOP expenses, and may decide to seek employment elsewhere. Employers that want to switch to an HDHP should look at including a health reimbursement arrangement (HRA) to maintain employees’ benefits experience while still reducing health plan spending.
Help Employees Maintain Their Benefits Experience
An HRA is an employer-funded account that helps employees cover their OOP expenses under an HDHP. Unlike a health savings account (HSA), with an HRA, any unused funds are returned to the employer at the end of the plan year. Employers may then choose whether to roll over HRA funds and, if so, how much.
Employers may be skeptical about funding HRA accounts up front. However, USI has found that 75% of plan members incur $4,000 or less in claims expenses. Many employers that choose to switch to an HDHP apply the premium savings to the HRA. With unused funds, employers can see a 5% to 10% total reduction in health plan costs.
| HRA | FSA | HSA | |
| Who Owns the Account? | Employer | Employer | Employee |
| What Happens to the Funds? |
Unused funds remain with employer Employer decides whether the funds roll over and sets the max rollover amount |
Unused funds go back to employer (“use it or lose it") |
Funds stay with employee (including any employer contributions) Funds roll over year to year |
| Who Funds the Account? | Employer (employees are not allowed to contribute to an HRA) |
Employees typically fund FSA via pre-tax payroll deductions | Anyone can contribute on behalf of the eligible individual, up to an annual limit set by the IRS |
| Who Can Use the Funds? | Employer can limit who can use the HRA within the IRS guidelines | Individual, spouse, dependents claimed on tax return, and children under age 27 at the end of tax year | Individual, spouse and dependents claimed on tax return |
How USI Can Help
USI leverages the experience of more than 3,000 alternatively funded health plans to help employers determine which funding strategies may benefit their company the most, including level funding and HDHP with HRA. We assist employers in selecting an appropriate vendor to administer the HRA and can provide additional communications support for a successful roll-out.
Reduce health plan spending without sacrificing the benefits you need to remain competitive. Contact your local USI benefits consultant or email ebsolutions@usi.com to learn more about these and other solutions designed to better manage health plan spending.
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