Employee Benefits are supposed to deliver value that an employee couldn’t easily re-create on their own.
If you think in terms of only “products” that you can purchase for your workforce or product they can purchase for themselves with you as the conduit to those products, then you’ve probably relegated cash-based solutions to the back-burner.
But, these are easy strategies to evaluate early, make quick decisions about, and even pivot those decisions later, if you must, after you’ve made the stressful big-ticket decisions. And you can implement these solutions in a heartbeat.
With the rapid pace acceleration of job hopping and a highly competitive labor market, we’ve seen companies that delayed or dismissed these options move them way up on their priority list. And rightly so, with the low cost for entry and low liability in risks. Heck, once you calculate the savings, in some cases companies may come out at a zero cost benefit to their bottom line while making a huge impact on their employee’s life.
This cash-based account is one that is 100% funded by the employee through payroll deductions. And since this particular account can only be accessed by the employee after their funds have been withheld, there is no outlay in cost to the employer other than a monthly admin fee. And the good news about those fees is most administrators only charge a monthly fee for those who enroll. In essence, you can offer the plan to 100 employees, and if only one person enrolls, you only have to pay the fee for one employee per month. And the great news for the employee, they can now pay for those daycare expenses will Pre-Tax dollars, which many can desperately use with the rising cost of daycare or after-school care programs that their children are enrolled in.
This is the program that everyone calls the use it or lose it account. In short, an employee pledges a dollar amount to have withheld over the course of the year, and you, the employer, will front any dollars up to the total annually elected amount at the time of a claim. So if a claim comes in for $600 and your employee has only contributed $300 through payroll deductions, you front the $300 difference, and the employee will still pay you back through the already scheduled payroll deductions.
This plan does carry a little more risk, as any employee that terminates is not liable to pay back any funds that were used (advanced) beyond what has already been withheld from their prior paychecks. But, as an employer, if you have employees that don’t use their full elections, those funds can help offset this expense.
And, again, this can be big savings for the employee. Imagine paying an $800 medical bill with $800 of pre-tax dollars, or trying to pay that same bill with only $640 of those same dollars and needing to work an extra 8 hours to make up that deficit due to paying the same expense with post-tax dollars.
This cash-based benefit can be a maze of really fun “what-if” questions. But, we are talking about solutions that we can fix easily with cash versus ramping up insurance coverage for everyone on your plan and their dependents.
An HRA or Health Reimbursement Account is access to an employer’s money for a set of specified expenses.
Sometimes you may want to use this strategy to fix the burden of a large health plan deductible, by setting it up a “backend HRA”. This is actually something we do here at Generous Benefits. Our core health plan has a $3,500 deductible, but we have paired it with an HRA to buy down the $2,000 on the back end of the deductible. In this scenario, our employees are only responsible for the first $1,500 of deductible expenses.
But you can be more creative than just deductible or co-insurance expenses with an HRA account. Here are a couple of examples we see our clients use:
There are a few other uses of a Health Reimbursement Account that are tied directly to your health plan. These arrangements need to be thought out strategically with your final Health Plan’s benefit design. You don’t have to sketch them out right now but think in terms of an Incentive plan for choosing certain providers based on price and quality as a means of steering your employees to keep the claim expenses lower on your health plan today in an effort to curb or reverse your health plan’s renewal increase next year.