HRA plans replace group insurance

A: Yes. Virtually every large employer today uses both an uninsured HRA health plan for expected costs combined with insurance for catastrophic losses. So yes, this approach is already the norm for employers with adequate financial resources to implement the most cost-effective health plan design. An HRA is simply a defined benefit health plan that typically does not require insurance due to the financial risk limits set by the employer. Smaller employers, on the other hand, tend to be locked into health insurance plans primarily because they cannot assume the larger financial risks of an uninsured health plan. Increasingly, smaller employers who cannot afford group health insurance simply offer a defined dollar health benefit through an HRA and let the employees pick and choose between insurance and reimbursements that make sense on an individual basis. Because individual choices dominate this approach, this is known as a "consumer-driven health plan". Part of the driving force of this trend is that about 3/4 of employees can find a better individual health insurance offer on their own than they are offered through group insurance. The down side is that employees with chronic pre-existing medical conditions are hurt by this alternate strategy because there are fewer health employees to pick up part of the insurance cost for the less healthy employees. There is an article at www.FreedomBenefits.org titled "How to Break Up a Group Health Insurance Plan" that deals with the practical considerations of this issue in more detail. If current trends continue, group health insurance will be priced out of reach for most small businesses (primarily as a result of adverse selection and the cost of state mandates) so the HRA is likely to continue to grow in popularity as consumer-driven health plans become more commonplace.