If there is one thing rising costs can provide, it’s creativity. Business owners all over are taking this opportunity to reevaluate not only from whom they purchase their health insurance, but also how they purchase it. But what are the pros and cons of all these different solutions?
First, some quick definitions:
- HSA (Health Savings Account) – A tax-deductible savings account for medical expenses only. Contributions can be made by the plan subscriber or by an employer.
- HRA (Health Reimbursement Arrangement or Account) – An agreement where an employer reimburses an employee for qualified medical expenses not covered on a company’s standard insurance plan.
- MERP (Medical Expense Reimbursement Plan) – An arrangement where an employer pays providers directly for qualified medical expenses not covered on a company’s insurance plan.
All these alternatives have one big thing in common: they allow businesses to raise the deductible on their group health insurance plan. It’s the fastest way to lower that initial sticker price on the company health plan while still providing some sort of benefit.
So what’s the difference between them?
HSAs seem like the easiest way to provide cash on hand for employees. But these plans often require employees to invest in the account as well employers, and once the funds are in the account they can only be used for medical expenses. For most, estimating how much to put into the account is tricky business. Invest too much and employees feel the account is a waste, but invest too little and the account isn’t serving its purpose, which is to provide tax-free dollars to improve the plan benefit.
So perhaps you move onto an HRA – a seemingly simple way to give employees company dollars for medical services rendered. Many employees never ending up using this benefit though. For many, the filing process for reimbursement seems complicated and arduous. Others simply forget the benefit is there because of the extra processing requirements. So at the end of the day, employees are really only experiencing the high deductible health plan.
Finally moving onto a comprehensive MERP. These plans can enable employees to get back that feeling of full coverage. Because the employer is paying the provider directly for services, the employee does not have to pay for them upfront. There is still a second level of processing for the medical claims but it is not left up to the employee exclusively to sift through paperwork and requirements. All of this is done through an outside third party administrator.
All in all, there are a lot of options out there for health insurance now. That’s why it’s important you have someone to help you look at and weigh all the options.