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Small Business Employee Benefits and HR Blog

How Can HRAs and Individual Insurance Replace Self-Insured Plans?

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. Question_Mark_by_Valerie_Everett

How an HRA can help a self-insuring company reduce their health benefit liabilities.

Illustrative Example: ABC Manufacturing (1,000 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.