As healthcare reform goes into full effect in 2014, most small employers are going to find it more beneficial to let their employees get individual coverage, rather than offering a group plan. Here’s a real-life example of how an employer cut health insurance costs by switching from group plans to individual plans. The key was setting up a health reimbursement arrangement (HRA) to pay employees to buy health insurance.
This is what happened when a company employing 33 people stopped buying group policies and set up an HRA through which to pay employees to buy policies on the individual market.
Three Ways the Employer Saved
The employer funded the HRA monthly with tax-free dollars to help with the cost. That relieved the employer of 1) annual contract renewals, and 2) went outside of the regulations covering group policies. This example took place in Minnesota, which has 64 rules that apply to group plans. 3) The employer also avoided COBRA administration costs.
The company that had been paying $11,200 a month for a plan started spending $6,400 a month through the HRA. The owner also promised employees that they would not to pay more and some would pay less for the new type of insurance.
Savings Resulted for All Employees
All but one employee got immediate savings. Health insurance companies adjust premiums by estimates of how much medical treatment a person will need. As a result, a young adult employee who had no health problems got major savings through an individual policy over group coverage costs.
A 63-year-old man was denied individual coverage because he had diabetes and a heart condition. He was accepted into the Minnesota Comprehensive Health Association that offers individual plans to people who can’t buy individual policies. (But starting next year, no one can be denied coverage in the individual marketplace.)
His monthly premium went up from $750 to $800 and the employer used some of his savings to offset the increase. He kept that man’s costs below what group coverage had cost him.
Are These Savings Typical?
A company with 20 employees may save from $60,000 to $100,000 per year and pay for a good portion of the cost of policies purchased through the individual market. With savings like that, employers can add money for additional coverage, such as critical-illness coverage, dental, life insurance, and long-term-care insurance.
The cost per employee may be between $3,000 and $9,000 per year. Even companies that employee more than 50 people and pay the $2,000 per employee penalty in 2014 may be able to save money by switching to an HRA and individual policies. Talk to us about how this would work for your company and we’ll help you make the change.