By Joe Maniscalco
As employers scramble to recover from the COVID-19 pandemic and its impact on revenue and cash flow, they might be surprised to learn that they can easily extract a substantial amount of working capital out of their health plans without causing any disruption to the plan or their people.
How? It’s possible through the Spousal Incentive Health Reimbursement Account (SIHRA), which is a simple bolt-on option to self-funded health plan groups of 500 or more employees.
When one employer in the healthcare industry offered the option to its 12,000 employees, it was a low-key, easy add-on to the healthcare plan and 331 people signed up – 696 in total, counting all the dependents. In the first year, it saved the employer $3.7 million.
By adding a SIHRA option to your health plan, you’re responding to a fact of life when it comes to health plans today: as much as 60% of your total costs are driven by employees’ dependents. To hedge against those costs, the SIHRA option gives financial incentives to the working spouses to enroll in their own employers’ group health plans. Likewise, employees (and children) currently enrolled are also eligible to elect the SIHRA option and enroll in their spouse’s employer’s health plans.
From an employer’s financial perspective, this removes risk from the balance sheet. To drive home the point, here’s the question we ask employers: which of the following financial risks do you prefer to take on when it comes to paying for future medical and pharmacy costs?
A) Unfunded liability – Your current liability retained on each employee, spouse and child is based on your specific stop loss deductible, which could range anywhere from $100,000 to $500,000 annually,
OR
B) Capped annual expense – With a SIHRA 100% benefit option, your worst case financial scenario for the plan member who chooses to waive your medical plan and enroll in their spouse’s plan is just $8,150 annually, which reimburses them for their out-of-pocket costs.
The incentive to the plan member to waive coverage in your plan is tax-free reimbursement of their out-of-pocket costs on the spouse’s plan – including deductibles, co-pays and co-insurance. The stop-loss deductible is replaced by the maximum reimbursement allowed under the Affordable Care Act (ACA) of $8,150 for a spouse and $16,300 for a family.
The SIHRA option allows a trade-off that can drastically reduce health insurance spend, creating new cash flow in the process. And it does so without replacing incumbents or vendors, disrupting the healthcare plan or adding administrative burden. The employer and participating employees get money back in their pockets, tax free – at a time when it’s never been more needed.
HUB International’s employee benefit specialists consult with employers of all sizes and in all industries on every aspect of employee benefits program planning and management.