The cost of health care for employees and employers has been going
up for the past few years and is
expected to continue to rise. Total
spending on health care in 2007 was $2.4
trillion, or $7,900 per person, and is
expected to increase over the next
decade to $4.3 trillion. Employer premiums also increased by 5 percent in 2008,
with the annual premium for a family of
four at nearly $12,700 and for singles at
$4,700. These increasing costs can cause
additional strains on employers and
employees in an already tight economy.
“Alternative funding, such as a health
reimbursement arrangement, is a way to
lower your total health care spending,”
says Julie Salem, manager of new business sales at Priority Health.
Smart Business spoke with Salem
about the types of alternative funding
available, how you can implement those
into your company and how they can
improve your bottom line while still
meeting employees’ health care needs.
What types of alternative funding or nontraditional health care benefits are available
for employers?
Priority Health offers an HRA, which is
a flexible, fully integrated health plan
solution. It adds a health reimbursement
arrangement (HRA) to a Priority Health
medical coverage plan. This can be used
with either a PPO, POS or HMO plan
design.
The employer controls the level of
HRA funding it wants to provide for its
employees. Employers can customize it
to suit the needs of their company as
well as their employees.
The base premium is lowered due to
utilizing a high deductible plan design.
For example, if an employer selects a
deductible plan of $5,000/$10,000, it
chose to set the employee’s deductible at
$250/$500, the employer is then ‘self-funding’ the balance of the deductible.
A new option for employers with at
least 100 contracts enrolled, Shared
Funding, could also be a money-saving option. Like other funding options, it’s
backed by cost-containment measures,
extensive network and great customer
service. Basically, how it works is
instead of paying premiums that are calculated according to the health of an
entire community, the premiums align
with the group’s claims history. The
group pays for its actual experience.
After 12 months, we compare the
group’s actual experience to the total
premiums it has paid. If claims are less
than projected, the group receives
money back, a full refund of the amount
it paid but didn’t use.
If the claims are more than projected,
the group owes the difference, but only
up to a ceiling amount that is agreed
upon in the beginning of the year. The
Shared Funding alternative has reinsurance (stop-loss) protection built in.
How can employers implement an HRA and
incorporate it with traditional benefits?
An employer will determine the
amount to contribute to the HRA and
their contributions are tax deductible.
There is no need to prefund this HRA; we allow funding on a pay as you go
basis. So if employees are not using benefits that go toward their deductible,
there is no funding required. The administration is simplified and, because of
our integrated system, we take care of
all claims processing and the tracking of
HRA balances.
We have a feature we can add to our
benefit plans we refer to as co-pay alignment. For several benefits, rather than
be subject to deductible and coinsurance, we apply a flat-dollar co-pay that is
aligned based on cost of service. For
example, an office visit, which is one of
the lowest cost benefits, would have a
flat-dollar co-pay of $10. A specialist
visit would have a flat-dollar co-pay of
$25, urgent care would be $40, etc. This
option will remove these benefits from
the deductible and, therefore, remove
them from the liability of the employer if
the employer is self-funding the deductible with an HRA plan design.
Does changing to an HRA affect employee
benefits?
It allows employees to keep their benefits just as they are. For example, if they
have a $250/$500 PPO plan, they can
keep the same plan design, but the
employer self-funds the higher deductibles down to the current level, therefore,
allowing the employees to maintain the
same benefit design. These plans are
also referred to as ‘wrap programs.’
What benefits will employers see from putting an HRA in place?
They’re lowering their premium. And
again, the contributions toward the HRA
are tax deductible. The employer retains
ownership of the HRA funds if the
employee leaves the company.
JULIE SALEM is manager of new business sales at Priority Health. Reach her at (248) 324-2856 or [email protected].
