Health Reimbursment Accounts

We all agree that healthcare costs are out of control.

  • Employers are paying too much
  • Employees are not getting enough value, and
  • Healthcare Providers have already reduced their fees as much as they can

The rising healthcare costs are affecting everyone-and everyone wants the problem fixed now. However, what is the problem, and how do we fix it? The answer is that there is no one thing that is causing the spiraling costs; it is a combination of factors. Only by identifying the factors and tackling them one at a time can we begin to gain control of healthcare costs.

A primary factor is that employees have lost touch with the cost of healthcare.

They go to the doctor, pay their co-pay, and get treated. The remaining costs are filed through the insurance plan provided by their employer. If the insurance doesn’t cover it all, the employee pays the remainder, either out-of-pocket or out of their § 125 Health FSA.

As consumers, the employees can be paramount in controlling healthcare costs if we can

  • Empower the employees by giving them choices in their healthcare options,
  • Furnish incentives for them to conserve healthcare dollars, and
  • Provide them with the information they need to choose their options and to save money on healthcare delivery

Employers are turning to the new Consumer Driven Health Plans (CDHPs), which allow employees to choose between multiple health plans supplying different levels of benefits. This choice gives the employees more control over both the level and cost of their healthcare.

A crucial component of the CDHP is the Health Reimbursement Arrangement.

For instance, a properly designed HRA encourages the employees to conserve healthcare costs by allowing unused employer contributions to be rolled over to be used in future years or at retirement.

While employers can achieve savings the first year by purchasing High Deductible Health Policies and creating different levels of coverage through HRAs, the savings incurred through employee choices will build over years. The following changes will take place:

  1. Employee attitude will change when employees are given choices.
  2. Employee behavior will change because they have incentives to conserve healthcare costs.
  3. Healthcare consumption will decrease as employees conserve on healthcare costs.
  4. Overall healthcare costs will decrease as individual employee healthcare costs decrease.