Note: None of this should be taken as legal or tax advice.
In a previous post, Rick described how a self-insured group health plan works. The purpose of this post is to provide an example of how HRAs and individual policies (what we call "ZaneHRA") might replace a company's self-insured health plan.
Using the example from Rick's earlier post, the following illustrates how a switch to ZaneHRA might help a company (who is currently self-insuring their health plan) reduce their health benefit liabilities.
Illustrative Example: ABC Manufacturing (1000 employees)*
Annual Exposure and Cost with a Self-Insured Group Health Plan
ABC Manufacturing's group health insurance is partially self-funded with a Third Party Administrator (TPA). They purchased a stop-loss policy covering claims in excess of $20,000 per employee per year that costs them $50,000 ($50 x 1,000) per month. The stop-loss policy caps ABC Manufacturing's exposure at $20,000 per employee per year. ABC Manufacturing's total risk exposure for the year is $20,000,000 (1,000 x $20,000) in claims. They predict that total claims for the year will total $5,000,000 which equates to an average monthly premium of approximately $467 per employee ($5,000,000 / 1,000 / 12 + $50).
Total Annual Risk Exposure = $20,000,000
Predicted Actual Cost = $5,600,000 (or ~$467 per month per employee)
Annual Exposure and Cost with ZaneHRA
ABC Manufacturing makes available an average of $5,600 per year (~$467 per month) to each employee using ZaneHRA. Their total risk exposure for the year is $5,600,000 ($5,600 * 1,000) Each employee purchases their own individual insurance policy and uses ZaneHRA to get reimbursed tax-free. Since ABC Manufacturing only has an expense if HRA funds are utilized with ZaneHRA, they predict that only 80% of the ZaneHRA funds will be utilized this year costing them approximately $373 per employee per month ($467 x 80%).
Total Annual Risk Exposure = $5,600,000
Predicted Actual Cost = $4,480,000 ($5,600,000 x 80%)
In this example, ZaneHRA reduces ABC Manufacturing's Annual Risk Exposure by $14,400,000. Additionally, ZaneHRA is predicted to reduce ABC's costs by 20% (or $1,120,000).
*This example is meant as an easy-to-follow illustration for educational purposes only and is not necessarily indicative of actual costs in the market.
