One of the biggest topics of conversation within an organization is its budget. Without a well-planned budget, you won’t be able to accomplish your mission well with your team.
Considering that health benefits are generally the second highest line item on a company budget — just below payroll — the notion of cutting costs on healthcare could be absolutely game-changing.
That’s why we want to share our extensive industry knowledge of health insurance and tax experience with you. Here’s a quick cheat sheet on the best ways to cut costs on healthcare without sacrificing quality benefits for your team.
1. Save Up, Literally
The first step to cutting costs on healthcare is to save up — literally. Meaning, move away from copay plans toward high deductible health plans (HDHPs) that are eligible for health savings accounts (HSAs) instead.
Why would you want to move away from copays? Aren’t those typically “better” plans? Well, if you look at the out of pocket limits, generally those costs will be lower on a high deductible health plan than on a copay plan. So you automatically lower your total risk factor just by making the switch.
But that’s not all. A gold copay plan is regularly around $10,000 a year more expensive than a bronze HDHP. This seems a bit excessive considering you will only go to the doctor, on average, 2 or 3 times per year.
With an HDHP, you can take those big annual savings and put them into a health savings account (HSA). That money goes in tax-free, grows tax-free, and can be spent tax-free, as well. Not to mention, if you save the IRS max on HSA contributions, you will have dramatically reduced your net-risk for the year.
This is why literally saving will be your best way to cut costs on healthcare.
2. Pay Only for Usage
The second best way an employer can ensure better healthcare costs is to pay only for usage. This is done via a Health Reimbursement Arrangement (HRA). HRAs are valuable because you only pay for what is actually used by your employees (i.e. when there is a bill to reimburse).
There are a lot of different ways to set up an HRA. For starters, you can bolt it onto a group plan, but then connect with your employees directly to reimburse for medical expenses. This will help your people out quite a bit, especially if it is on the frontend.
Another option is using a backend HRA. This means that a predetermined amount of expenses must be covered by the employee before the reimbursements kick in. While it may not feel like as much of a benefit to the employee, it still helps lower their net out of pocket maximum for the year.
Another strategy is providing an HDHP with generous upfront HSA contributions (see above) along with a backend HRA to really minimize the net-risk of the employees.
Finally, Individual Coverage HRAs (ICHRA) are another model for medical reimbursements. Opposed to other types of HRAs, ICHRAs can contribute toward medical expenses and health insurance premiums. This is another great way to cut costs on healthcare for both you and your employees.
No matter how you do it, opting for HRAs is a great way to ensure you’re only paying for what you and your team actually use.
3. Unlock Tax Credits
The third and final way you can cut costs on healthcare is by unlocking tax credits. You may be wondering what “unlocking” tax credits even means, or if that even applies to your situation?
What I’m referring to are called Advanced Premium Tax Credits (APTC). These essentially work as a discount on the individual insurance product being purchased on the Marketplace. They are not available for group products. In fact, if you’re offering a traditional group product, your team loses access to these discounts altogether.
However, if you leave your traditional group health plan and transition over to a wage increase model instead, you can actually leverage IRS Notice 2015-17. This not only provides your team access to options for individualized health plans, but also allows them to find cheaper prices thanks to these tax credit discounts.
To break down the way this works, the carrier calculates how many tax credits an individual qualifies for from their application. They then sell that discounted product to the individual, and then the carrier sends the application over to the IRS. The IRS will, in-turn, send the tax credit directly back to the carrier on behalf of the taxpayer.
At the end of the year, the carrier and the IRS send justifying documentation to the taxpayer (i.e. your employee). They then true-up those numbers with their annual IRS 1040 when they file their taxes.
Taking advantage of this method is certainly one of the best ways to cut costs on healthcare since it helps both the employer and the employees. The employer can even take their savings and provide more HSA contributions or HRA reimbursements if they want. Meaning these strategies can help you care better than ever for your team!
Imagine what this can mean to your budget?
Controlling the budget? Cutting expenses on the budget? Cultivating the budget to actually benefit your team better? Remodel Health is the national leader in partnering with organizations to cut costs on healthcare while still taking great care of your team. Evaluate the full spectrum of options to customize your solution. Connect with our team of benefits consultants today by emailing [email protected] and booking a demo!
Important Notice: Remodel Health does not intend to provide specific insurance, legal, or tax advice. Remodel Health always recommends to consult with your own professional representation to properly evaluate the information presented and its appropriate application to your particular situation.