Reduce Employee & Employer Healthcare Costs with a Medical Gap Plan or Health Reimbursement Arrangement (HRA)

Medical Gap Insurance

Medical Gap insurance, also known as supplemental health insurance, is designed to complement an employee’s primary health insurance plan. It helps cover out-of-pocket expenses that the primary insurance may not fully cover, such as deductibles, co-payments, and coinsurance. Gap insurance can be particularly beneficial in high-deductible health plans, where employees are responsible for a significant amount of their medical costs before the primary insurance kicks in.

Overall, employee medical gap insurance serves as a valuable tool for managing healthcare costs and providing financial security for both employees and employers.

How Medical Gap Works:

  1. Primary Insurance Coverage: An employee has a primary health insurance plan that covers a portion of their medical expenses. This plan has a deductible, co-payments, and coinsurance that the employee is responsible for paying.
  2. Gap Insurance Activation: When the employee incurs medical expenses that are not fully covered by their primary insurance, the gap insurance can be activated to help cover some of these out-of-pocket costs.
  3. Claim Process: The employee or healthcare provider submits a claim to the gap insurance provider, detailing the expenses incurred that were not covered by the primary insurance.
  4. Payment: After reviewing the claim, the gap insurance provider pays a benefit amount directly to the employee or healthcare provider to help cover the uncovered expenses. The benefit amount and coverage details vary depending on the gap insurance policy.

Example of Medical Gap:

Let’s say an employee, John, has a primary health insurance plan with a $3,000 deductible and 20% coinsurance. John undergoes a surgery that costs $10,000.

  • Primary Insurance: John’s primary insurance covers 80% of the cost after the deductible. So, John is responsible for the $3,000 deductible plus 20% of the remaining $7,000 ($1,400). In total, John’s out-of-pocket expense is $4,400.
  • Gap Insurance: John has a gap insurance policy that covers up to $2,500 of his deductible and coinsurance. After submitting a claim, John receives a $2,500 payment from his gap insurance provider.
  • Final Out-of-Pocket Cost: With the gap insurance payment, John’s final out-of-pocket cost is reduced to $1,900 ($4,400 – $2,500).

In this example, the gap insurance significantly reduces John’s financial burden by covering a portion of the expenses not covered by his primary health insurance.

Advantages of Medical Gap:

Advantages of Medical Gap for Employees:

  1. Reduced Financial Burden: Gap insurance helps cover out-of-pocket expenses such as deductibles, co-payments, and coinsurance, reducing the financial impact of medical treatments.
  2. Increased Access to Care: By lowering the cost barrier, employees may be more likely to seek necessary medical care without worrying about high out-of-pocket expenses.
  3. Peace of Mind: Knowing that they have additional coverage can provide employees with peace of mind, especially those with high-deductible health plans or those facing potential high-cost medical procedures.
  4. Flexibility: Gap insurance often provides flexibility in how the benefits are used, allowing employees to apply the funds to various out-of-pocket expenses.
  5. Enhanced Coverage: It supplements the primary health insurance, providing a safety net for unexpected medical costs.

Advantages of Medical Gap for Employers:

  1. Attractive Benefit Offering: Offering gap insurance can make the employer’s benefits package more attractive, aiding in the recruitment and retention of employees.
  2. Cost-Effective: It can be a cost-effective way for employers to enhance their benefits package without significantly increasing their expenses.
  3. Improved Employee Satisfaction: Providing additional financial protection can lead to higher employee satisfaction and morale.
  4. Reduced Absenteeism: By encouraging employees to seek timely medical care, gap insurance can help reduce absenteeism and maintain productivity.
  5. Customization: Employers can tailor the gap insurance plan to fit the needs of their workforce and complement their existing health insurance offerings.

Health Reimbursement Arrangement (HRA)

An Employee Health Reimbursement Arrangement (HRA) is a type of employer-funded health benefit plan that reimburses employees for out-of-pocket medical expenses.

  1. Employer Funding: The employer sets aside a fixed amount of money each year in an HRA account for each participating employee. This amount is determined by the employer and can vary based on factors such as the employee’s job role, tenure, or family status.
  2. Eligible Expenses: The employer also determines which medical expenses are eligible for reimbursement under the HRA. These can include expenses like deductibles, copayments, prescriptions.
  3. Employee Claims: When an employee incurs a medical expense that is covered by the HRA, they submit a claim to the employer or the HRA administrator, along with proof of the expense (such as a receipt or invoice).
  4. Reimbursement: If the claim is approved, the employee is reimbursed for the expense up to the available balance in their HRA account. The reimbursement is typically tax-free for both the employer and the employee.
  5. Unused Funds: Depending on the plan design, unused funds in an employee’s HRA account at the end of the year may be rolled over to the next year, or they may be forfeited.

HRAs offer flexibility to employers in designing a health benefits plan that fits their budget and meets the needs of their employees. They also provide employees with a way to offset their healthcare costs without the funds being considered taxable income.