HRA Vs HSA

Another year of steadily rising insurance premiums for your business and you are faced with a major dilemma… make employees contribute more towards their insurance or drastically cut the the insurance benefits to make it more affordable for your business.

It’s definitely a bad situation for everyone involved, but it doesn’t have to be. Don’t make the mistake of reacting too quickly and not choosing one of the best tools at your disposal.

Catastrophic Health Insurance in New Jersey

A properly set up and administered Catastrophic Health Insurance Plan will solve these key issues for your business:

Cut your premiums by up to 50%. Yes 50%!
Allow for more flexibility in your insurance plan design
Allow you to set up an HSA or HRA. See my post on HRA’s vs HSA’s.
Save your employees money on their payroll deduction
Allow you to continue the health plan without sacrificing benefits for everyone.

Catastrophic Health Insurance – How does it work?

In NJ you will generally use a qualified high deductible health plan as your catastrophic health insurance.

Upfront Deductible

Almost all of the catastrophic health insurance plans in NJ will have $2,500 single deductible and a $5,000 family deductible. With these plans, all services are subject to the deductible before anything is covered. You do pay lower negotiated rates for your services though.

Maximum out of Pocket

The other key feature of NJ Catastrophic Health Insurance is that they all have a maximum out of pocket. This is the annual limit on how much you will have to pay for your covered services. This figure is usually $5,000 per single employee and $10,000 per family.

Catastrophic Health Insurance To Save the Day – Putting it All Together

Since you are using a qualified high deductible health insurance plan, you have two options at your disposal.

Health Savings Accounts
Health Reimbursement Arrangements

We are going to focus on health reimbursement arrangements because this is where employers will save the most money.

Under the new high deductible plan, the HRA will allow you to reimburse your employees for their medical expenses up to whatever dollar amount you choose. You are going to fund no more that what you can afford and it will be based on your premium savings.

Plan Design

Your 10 employee company had an annual premium $60,000. $500 per employee per month.

Your new high deductible plan has an annual premium of $30,000 per year. $250 per employee per month.

Annual Savings of $30,000.

HRA Fund

Based on your proposed savings of $30,000, you will agree to fund the full $2,500 deductible for each employee.

This will total $25,000. If all employees use their reimbursement money, you will still have saved $5,000.

But they won’t……

They will likely use somewhere in the neighborhood of half the money.

End Result:

Old premium:$60,000

New premium + HRA(half usage) = $37,500

Savings:$22,500

That is an almost 40% reduction in your overall premium for the year.

Catastrophic Health Insurance Summary

I showed you a quick example of how a small business can save nearly 40% on their medical insurance premiums. Don’t make the mistake that many do in ignoring catastrophic health insurance as the answer their insurance premium woes.

I would love the opportunity to earn your business. Please contact me for your small business health insurance quote.

HRA Vs HSA

HRA Definition: An HRA is plan that is set up under IRS code section 105H and is established for the purpose of reimubursing employees for qualified medical expenses.

HRA’s are employer funded only

Money can be rolled over year to year if the employer chooses

Funds deposited and dispursed are tax deductible to the business and tax free for the employee

No limit on how much can be reimbursed

Any qualified medical expense can be reimbursed

HSA Definition: An HSA is often used in two different contexts. The first is the actual savings account and the second is referring to the health plan you are to be covered under.

HSA Savings Account – this an account that can be funded by an employer or employee for the purpose of paying for medical expenses.

Limits on how much money can be put into the account each year.

Money rolls over year to year.

Funds are completely employee owned

Can be used to pay for any qualified medical expense on a tax free basis

Must be covered by a HSA Qualified Health plan to make deposits into the savings account.

You can read more about HSA Rules for 2012 here.

HRA VS HSA In the real world

When I am working with new and renewing groups, using one of these great strategies is usually first in my list of options. Each one has their pros and cons so lets look at how each one would work for a company.

ACME LLC – has a 100% HMO where the employer pays 100% of the premium and they just a got another 20% increase. They are comparing an HRA vs an HSA to save money. They have decided on purchasing a HSA qualified health plan but now need to pick the funding arrangement.

The company will be saving about 40% in premiums using the high deductible health plan and don’t want employees to have any large medical bills.

Option 1: HRA – The employer has decided to refund employees their full medical deductible. As employees use the plan, the employer will reimburse them dollar for dollar up to the set limit. Any unused money is retained by the employer

Option 2: HSA – The employer does not want to bother with claims and wants to give the employees money to pay for their claims. The employer makes monthly deposits into each employees Health Savings Account until he has paid an amount equal to their medical deductible.

Under Option 1, the employer has the chance for much greater savings but there is a little more work involved in reimburseing everyone. Option 2 is a bit easier and more flexible, but once the money is given to the employee, it is gone. If an employee quits, they keep the money.

If you own a business and are weighing HRA vs an HSA, please call me for a health insurance quote or to hear how these strategies can help with your bottom line.

Catastrophic Health Insurance – Did You Make This Mistake With Your Small Business Health Insurance?

Catastrophic Health Insurance in New Jersey

Catastrophic Health Insurance – How does it work?

Catastrophic Health Insurance To Save the Day – Putting it All Together

Catastrophic Health Insurance Summary

HRA vs HSA – Health Reimbursement Arrangement Vs Health Savings Account

HRA Vs HSA