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Conventional Medical Plans Vs. HRA and HSA Plan Methods
Until recent years there had only been two alternative methods to approach major medical insurance coverage for your employees. The options were to self insure the risk of the health claims or to choose a fully insured health plan and pay the required premiums. For most employers, the first alternative was not an option as the risk of healthcare costs to smaller sized companies far outweighed the ability of the company to pay the claims. As a result, most companies were required to adopt a ‘conventional method’ for finding acceptable health insurance coverage. This seemed to work well until recent rises in healthcare costs have caused a significant increase to the premiums required for this option. The need for a more affordable method was quickly realized. From that need the Health Reimbursement Arrangement (HRA) and Health Savings Account (HSA) plans were formed.HRA/HSA plans can be thought of, in basic terms, as partially self funded insurance programs. Both plans operate by purchasing a High Deductible Health Plan (HDHP) at usually $2500 or more. These higher deductible plans show a significant savings over conventional health plans. The remainder is then self funded by the company up to the benefit amounts they desire. This puts the company itself in charge of the level of benefits of their health insurance program and their exposed risk is capped by the inclusion of the HDHP. An employer can also reduce costs and significantly reduce any remaining risk
