Section 105 HRA & Section 125 Plans
Traditional Defined Benefit Health Insurance Versus New Defined
Contribution Health Insurance
Utilizing a Section 105 HRA
Traditional Defined Benefit Plan: The employer provides employees with a defined healthcare benefit <(e.g., $10 copayment, $250 deductible, 80% coinsurance) for doctor visits, hospitalization, and pharmacy at uncertain annual cost. The benefit is administeredthrough the employer-sponsored grouphealth benefits plan.
Defined Contribution Health Care is an employer funding strategythat seeks to fully or partially limit (i.e., “define”) an employer’s cost for delivering health insurance to employees. The employer provides employees with a tax-free allowance or “contribution” to spend on their own healthcare—at an annual cost that the employer controls. Employees use this allowance to pay the premiums for their own individual/family health insurance policy, to pay out of-pocket medical expenses, and to make contributions to their Health Savings Account.
Why offer it?
- Control employer costs
- Shift responsibility from employer to participants
- Encourage participants to be price-sensitive and educated consumers of health care
- Increase flexibility and choice
In 2008, the annual cost of traditional employer sponsored health insurance premiums averaged $12,700 per family and $4,700 per individual. In California the annual cost of group health insurance is 50% to 150% more expensive than individual coverage.
|Price Difference Between Employer Group And Individual Coverage||Average Age – 35 Average Premium for Southern California||Average Age – 35 Average Premium for Southern California|
|Traditional Group Insurance||$4,700||$12,700|
|Individual/ Family HDHP||$900||$3,600|
SECTION 125 VOLUNTARY BENEFIT PLANS
-Employers are able to increase the benefits offered to their employees with no direct cost to the company, and no additional administrative burden to the HR and Payroll departments.
-Employers can save money by making the Voluntary Products available through an IRS Code Section 125 Plan.
-Employees can access affordable quality benefits and pay for Voluntary Products on a pre-tax payroll deduction basis.
-Types of Voluntary Products available through Health Insurance Brokers, LLC:
- Accident Insurance
- Dental & Vision Insurance
- Term or Universal Life Insurance
- Critical Illness, Cancer, and Heart/Stroke Insurance
- Hospital Indemnity Insurance
- Disability Insurance