Authors: Suzanne Haslam Sheila Villaroman
When you have a fully insured health plan, you might think you don't have a viable way to reduce benefits costs. After all, you can't access data analytic insights you would see if you were self-funded. But switching to self-funding isn't always an option, especially for smaller organizations. Cutting programs is a consideration, but the last thing you want to do is take benefits away from employees or raise their costs.
However, your hands aren't tied. With a little creativity and proper guidance, you have options. The following strategies can help lower costs for your fully insured health plan while continuing to provide valuable employee benefits.
Base and buyup medical plan options
With a high/low medical plan strategy, employers offer employees two options:
- A low-coverage plan where the company pays most of the premium for a basic plan.
- A high-coverage plan where the company contributes the same amount as the low-coverage plan and the employee "buys up" the remaining premium costs for a more robust plan.
Employees often prefer having choices because it leaves the coverage decision up to them while still being easy to understand. For employers, a high/low strategy is easier to budget for, since costs are fixed for both plans.
To provide richer benefits for employees and reduce their out-of-pocket expenses, companies can also layer the low plan with an employer-paid hospital indemnity plan. Employees would then receive some funds following a hospital stay, which can help cover a high deductible or a hospital deductible. These plans are low cost to the employer but offer added protection to employees.
High/low medical plan benefits and considerations:
- Easy-to-understand and can be well received by employees
- Gives employees options
- Lower premium costs for employers
- Fixed costs
- Easier to budget
- Ability to layer on additional hospital protection to the lower plan
Buydown plus MERP or Health Reimbursement Arrangement
If you want to keep your group insurance plan but are facing a steep renewal increase, buying down your group plan and adding a medical expense reimbursement plan (MERP) or Health Reimbursement Arrangement (HRA) can offer a solution to lower costs.
A MERP is a type of HRA funded by the employer and used by employees to cover medical expenses. With a MERP, employers can load money onto a benefits card for each employee. Employees can then use that card to cover deductible costs and co-pays.
"Buying down" your group plan means electing a more affordable option with higher deductibles and co-pays. While higher out-of-pocket costs may not sound ideal for employees, a MERP/HRA can help make up the cost difference or give employees first-dollar coverage for their medical expenses.
Meanwhile, employers save on premium costs and can begin to gather limited utilization data based on MERP/HRA claims. This data may help guide future plan design changes. With this strategy: It's a best practice to disclose any other type of funding to the medical carrier, as some require notification.
Buydown plus MERP/HRA benefits and considerations:
- Reduced premium costs
- Fixed costs determined by employer
- Tax-deductible contributions
- Tax-exempt reimbursements to employees
- Availability of limited utilization data to guide future plan design changes
Individual Coverage Health Reimbursement Account
An Individual Coverage Health Reimbursement Account (ICHRA) is an employer-funded account employees can use to pay the premium for the individual health insurance plan of their choosing. Employers contribute pre-tax dollars, reducing payroll taxes for the employer and income taxes for the employee.
In addition to reduced taxes, employers determine how much to contribute to an ICHRA, resulting in fixed costs and improved cost control.
Shifting to an ICHRA strategy involves terminating your group health insurance policy and instead using those dollars to fund employee accounts. This strategy allows employees to select the medical coverage that works best for them and their families and pay for the premiums (and cost sharing, if the employer so chooses) with ICHRA dollars.
Although an ICHRA strategy shifts the onus of selecting benefits from a group to the individual employee, a third party can help them make the right decision and secure coverage in their area.
Working with an expert that can perform a feasibility study can help you decide if an ICHRA strategy is right for your company and your employees.
ICHRA benefits and considerations
- It begins with a feasibility study.
- Employees choose their own benefit plans.
- It requires ample education and guidance for employees.
- The employer determines how much to contribute to the ICHRA, which makes it easier to control employer costs.
- Reduced payroll and income taxes save employer and employees money.
Communication as the key for your fully insured health plan
With healthcare costs continuing to rise, it's important to have discussions about the cost of employee benefits and whether another strategy could make sense for your business, your employees and your budget.
An experienced benefits consultant can help you assess which strategy does — or doesn't — fit your needs. To learn more about cost-saving strategies for your employee benefits needs, contact your Gallagher employee benefits specialist.
