Employers are turning to the new Consumer Driven Health Plans (CDHPs), which allow employees to choose between multiple healthcare 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 (HRA). 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.
We all agree that healthcare costs are out of control. The problems are simple to understand:
- Employers are paying too much to provide quality healthcare options to their employees
- Employees are not getting enough value because employers are paying too much
- Healthcare Providers are not making enough money from individuals.
The rising healthcare costs touch everyone. The solution is not as complicated as politicians would like us to believe. The goal needs to shift to lining up the interests of the individual family, their employer, and the healthcare providers.
The Health Reimbursement Arrangement (HRA) aligns the three parties. The traditional process sees the employer paying the health insurance premium each month. The employee visits the doctor, pays their copay, and is made to feel better –until they receive the bill the insurance company did not pay. The employee is left to pay the bill himself or herself. This is where the HRA steps in and is able to fund the rest through tax-free dollars earned by the employee over the year(s).