The Value of Insurance
Let’s take a minute to address insurance. We all know what it is, but sometimes understanding the value in an insured product versus something that seems like insurance is difficult.
Insurance can be described as an arrangement that provides risk transfer and protection against a possible eventuality. Yes, that may sound a little theoretical, but it just means that when and if something happens to you that affects your health and results in the need to get a prescription, see a doctor, have surgery (etc.), you will have the monetary means to do so.
Health expenses are expensive by nature. Insurance protects you with the security of being able to receive the care you need without winding up in a treacherous amount of debt.
HRA vs Insurance
Now, let’s compare an insured product to another common way to pay for healthcare expenses, like an HRA (a healthcare reimbursement account). HRAs are employer-paid accounts that provide tax-savings and reimburse for qualified medical expenses. They don’t have contribution limits, but the employer must offer the same amount to all employees, which makes it difficult to offer a lot to anyone due to company cost restraints. While HRAs are great tools to provide additional tax-efficient coverage, they cannot provide the same level of coverage as actual insurance.
Consider this example: An employer provides each employee with a $1,000 HRA that they can use toward whatever medical expenses they choose, which sounds great! But here’s the problem: A healthier employee may not use the entire $1,000, while an unhealthier employee may use it all and still need more to receive the care they need. So an HRA may not actually provide coverage for those who really need it.
With an insured product, those who need coverage will receive it and those who don’t need as much will still receive what they need. It’s the best of both worlds.
Of course, it seems like insurance is the better option! But unfortunately, primary healthcare insurance is very expensive for companies, and those prices are only rising. This is why employers are turning to health accounts, like HRAs, to attempt to provide their employees with a way to fill the gaps.
But as you can see from the example above, HRAs won’t always provide the reimbursement that each employee needs. It would be wonderful if each employee required the same amount of healthcare and $1,000 would be the perfect amount to cover it. But that’s just not the case. Some will need $200 while some will need $5,000, and HRAs don’t have the ability to ebb and flow with those needs.
Here’s where supplemental insured products come in. They can be layered onto the primary plan for additional coverage. And some of them work similarly to HRAs with comparable price points, but they’re real insurance! That means they provide security to employees with their ability to fluctuate based on individual employee needs.
So when choosing between a product that acts like insurance and a product that is insurance, remember that the value of an insured product is much greater.