Fast Focus
	Individual policies may pay off for employees of small businesses.
	Higher salaries or contributions to HRAs may fund premiums.

The Power of One

When group coverage gets too expensive for small employers, brokers turn to individual policy options.

By  Molly Butler Hart

Good things come in small packages. That’s the mantra now being chanted by a cadre of benefits consultants and brokers looking to add value in the employer health care arena as rising premiums and increasingly complex administrative requirements cause many businesses to shy away from offering health care benefits.

Rather than counsel employers to control costs by tweaking an existing group health care benefits package, some brokers are advocating changing the health benefit delivery model. The emphasis is moving from group to employer-engineered individual policies.

There are three models taking shape. One involves offering individual insurance policies through affinity groups and compensating employees for the premiums by paying a higher salary. Another involves using Health Reimbursement Accounts to fund premiums for individual insurance policies. And the third involves providing access to either individual or limited benefit plans on a national basis. All three models are particularly germane to small-business owners and employers with part-time workers, contractors or consultants.

“We are doing a significant amount of business in employer individual policies, especially in the small employer market,” says Michael Paschke, executive vice president of Brown & Brown. “In a group plan, 10% of the people typically use 90% of the health benefits. A group policy gets weighted down by the costs of that 10%. Take them out of the equation and costs come down considerably.” Moreover, small employers in particular are not set up to deal with the administrative headache group health plans entail. Directing employees toward their own individual policies takes them out of that cycle. “The trend is toward saying, ‘Secure your own. We will give you a raise to cover the costs,’” says Paschke.

This approach is particularly effective in the affinity market, where professional groups can offer policies to individual members at negotiated rates. “We tell realtor groups, medical groups, alumni groups that we will hook them up with the affinity discount,” Paschke says. “Their employees will get the bill at home taking the employer out of the administrative loop.”

Brown & Brown has used its clout to negotiate with Blue Cross/Blue Shield for discount rates with various affinity groups, Paschke reports. Members compensate their employees for the policies with higher salaries.

How does this work for the broker? “We sell the individual policies and collect the commissions,” he says. “And the commissions on individual policies are generally higher than group.”

Re-engineering

Utah-based Zane Benefits has taken this model one step further with ZaneHRA—a platform that uses health reimbursement accounts as a tool to allow employees to choose their own health insurance policies and pay for those policies with HRA dollars. An HRA is a defined-contribution plan vehicle created by the IRS to allow employers to reimburse their employees for qualified medical expenses that are typically not covered under most health insurance plans. HRAs are sometimes referred to as Section 105 plans after the section in the U.S. tax code that governs them.

These plans are akin to Health Savings Accounts (HSAs), but they are different in a key way. Both plans are sometimes used by large employers that offer comprehensive benefits and want to supplement them by giving employees tax-free dollars for non-covered medical costs. An HRA, however, is funded solely by the employer; it cannot be funded by employee dollars. Employers can write off the expense for tax purposes, similar to more traditional health benefits, while the money does not count as taxable income for employees. And HRAs can be designed as a standalone benefit or coupled with a health plan. HSAs, by contrast, are controlled by the employee rather than the employer. Both employees and employers can contribute to an HSA. They also differ in that employees can use the money in an HRA, but generally not an HSA, to buy health insurance. This is key to the Zane Benefits approach.

The ZaneHRA platform includes two distinct products: SimpleHRA and GroupHRA. SimpleHRA is designed for employers that do not offer group major medical coverage. GroupHRA is essentially a high-deductible, consumer-directed health plan.