How to supplement your HRA with a group health insurance plan

The first time a small or medium-sized business (SMB) is able to offer their employees health benefits is an exciting milestone. Offering a quality health benefit is an excellent tool for both employee retention and recruiting that sets your organization apart from those struggling to offer health benefits amid the COVID-19 pandemic.

Health reimbursement arrangements (HRAs) are one of the health benefits options that have made it possible for SMBs to successfully contribute to their employees’ healthcare, even on a small business budget.

As your organization grows and more employees join your team, you may be wondering: When will we outgrow our HRA? Is a traditional group health plan the next big step for our health benefits plan?

While offering a group health insurance plan may seem like the next logical step for your organization, these plans come with complicated regulations, expensive annual rate hikes, and stringent participation requirements. This can be jarring for a small business owner used to the simplicity and affordability of an HRA.

In this article, we’ll walk you through the pros and cons of group health insurance plans and highlight other ways you can upgrade your health benefits plan without losing the perks you’ve come to love about your HRA.

Short on time? Get our quick comparison chart on group health insurance vs. HRAs

Group health insurance: the basics

A group health insurance plan is usually the first option that comes to mind when employers are thinking about upgrading their health benefits. With a group health insurance plan, an employer will choose one insurance plan for all of their employees to participate in, and enrolled employees will pay a monthly premium to maintain coverage.

Typically, there’s a deductible participants need to meet before their coinsurance is applied, as well as an out-of-pocket maximum that participants must meet before the insurance will cover anything.

What are the pros of group health insurance?

Given that nearly half of Americans are covered through an employer-sponsored group health plan, the biggest advantage of these plans is that they’re well known. Group health insurance plans are what most Americans are used to being offered, so they generally know how they work.

Not only are they familiar among employees, they’re also well known among health insurance brokers. This makes it easy to find an agent or broker to help you purchase a policy and complete your enrollment documents.

Lastly, employees enjoy the cost-sharing that comes with group health insurance plans. According to the Kaiser Family Foundation (KFF), the average percent of health insurance paid by employers in 2019 was 82% for single coverage and 70% for family coverage.

What are the cons of group health insurance?

The biggest disadvantage of group health plans—especially for employees used to the freedom of HRAs—is the lack of choice in the plan. With a group health insurance plan, everything is decided by the employer, so employees get no choice in the cost, network, or type of coverage they’ll receive.

What’s more, group health insurance plans are expensive, especially for SMBs with tight budgets. The average cost of group health insurance premiums have become increasingly more expensive, with even large employers worried the costs will become unsustainable within the next few years. Not to mention employers are subject to annual rate hikes every year the plan is due for renewal.

Having to worry about changes to group health every year can take up a considerable amount of an HR person’s or department’s time as they try to minimize risk for their employees and for the organization. This can all be avoided, as we will see below.

Finally, group health plans come with far more requirements than HRAs. From minimum contribution requirements requiring employers to pay for a set percentage of their employees’ premiums, to strict participation requirements mandating how many employees you need to participate, getting enrolled can be a headache for small employers who can’t meet these requirements.

Other ways you can upgrade your health benefits

While going all-on on a traditional group health insurance plan may not be a realistic next step for your organization, there are other ways you can upgrade your HRA as you continue to grow and hire more talent.

Graduate to an individual coverage HRA

If you’re currently offering a qualified small employer HRA (QSEHRA), but your organization has grown larger than the 50 employee limit, you can transition over to an individual coverage HRA (ICHRA).

An ICHRA works just like a QSEHRA, with a few notable exceptions:

• Organizations of all sizes are eligible to participate
• There are no monthly or annual allowance caps restricting how much employers can offer
• Employers can offer both an ICHRA and a group health insurance policy (though employers must decide which employees receive which benefit—one employee can’t receive both an ICHRA and group health)
• Employers can define benefit eligibility and offer different allowance amounts based on 11 different employee classes
• Employees can choose whether they want to participate in the ICHRA or collect a premium tax credit (rather than having their premium tax credit reduced like with a QSEHRA)

Watch our video to get a quick rundown on how QSEHRAs and ICHRAs are different

Supplement a group health insurance plan with an HRA

If you have the budget to offer a traditional group plan, but also like the personalized benefit of an HRA, the group coverage HRA (GCHRA) is a special type of HRA that’s specifically designed to work alongside a group health plan.

The GCHRA, often called an integrated HRA, is a reimbursement arrangement between an employer and their employees to help pay for the out-of-pocket costs that aren’t fully paid for by the group health insurance plan.

Unlike a traditional integrated HRA, you aren’t restricted to compatible plans through any individual provider. Plus you can keep your HRA even if you change insurance providers. In addition, offering a group health insurance plan alongside a GCHRA can help bridge the gap between offering a group plan and minimizing premium costs.

Get our comprehensive guide for everything you need to know about the GCHRA

Conclusion

Your organization growing out of your health benefits is a great problem to have—it means the health benefits you’ve been offering up to this point are working! Updating your coverage so that you can continue to recruit and retain top talent is a smart move to stay ahead of the curve. Luckily, there are HRAs for every business size and budget, so when you’re ready to level up your benefits, we are here to help you every step of the way!

Take our quiz to find out which HRA is best for where you’re at with your business

This article was originally published on December 13, 2019. It was last updated August 20, 2021.