The Benefits of Offsetting Deductibles

When an employee makes a claim on their healthcare plan for a qualified expense, they typically have out-of-pocket costs to cover. These costs could be a copayment, coinsurance or deductible. In some cases, this amount can be substantial and difficult to afford. The good news is that there are ways to reduce these costs, helping people afford the medical services they need to live a healthy life. Whether you're a producer shopping for solutions to offer or an employer needing a strategy to manage employee healthcare costs, this guide will help you unlock the benefits of offsetting deductibles.

What Does Offsetting a Deductible Mean?

Offsetting a healthcare deductible means reimbursing or compensating some of the money an employee spends on their health insurance deductible.

In a group healthcare plan, the deductible is the amount an employee must pay before the insurer pays out. The deductible is separate from the annual or monthly premium their employer pays to maintain their coverage, whether they make any claims. It's also distinct from a copayment, which is a fixed amount the employee pays when receiving medical care, or coinsurance, which is a percentage of the bill they may have to cover while the insurer pays the rest.

Employees are usually responsible for deductibles, copayments and coinsurance as their own out-of-pocket costs. However, there are ways employers can help their employees recover these expenses. When employers use these solutions, they offset their employees' out-of-pocket costs.

Strategies for Deductible Offsetting

Several out-of-pocket cost management strategies are available to employers. Four of the most popular are:

• A Medical Expense Reimbursement Plan (MERP)
• A Health Reimbursement Arrangement (HRA)
• A Health Savings Account (HSA)
• A Flexible Spending Account (FSA)

Here's how each of these strategies can help offset deductibles.

A Medical Expense Reimbursement Plan

A MERP is an employer-sponsored medical coverage plan. Employers contribute to the plan using their contributions and pre-tax payroll deductions from employee salaries. Employees can claim reimbursements from it for out-of-pocket expenses arising from qualified services that their employer designates, like:

• Doctor visits
• Emergency or urgent care visits
• Hospitalization
• Medical prescriptions
• Physical therapy
• Surgical treatment
• Vision prescriptions

The employer can customize their MERP to offer employees the benefits they value most. For example, they can provide more mental health benefits than many conventional healthcare plans offer. This option is especially appealing to companies with a growing base of Gen Z employees, who are more conscious of mental health than previous generations.

Employers often combine a MERP with a High-Deductible Health Plan (HDHP). This strategy can unlock major cost savings for the employer because high-deductible policies have lower premiums, but the MERP ensures their employees still get the overall coverage they deserve.

A Health Reimbursement Arrangement

An HRA is another type of healthcare reimbursement account. Like a MERP, an HRA allows the employer to choose which expenses qualify for reimbursement. Provided they comply with IRS regulations, both MERP and HRA plans enable tax-free distributions to offset out-of-pocket medical costs. The main differences are:

• HRA accounts are fully employer-sponsored, whereas MERP accounts allow cost sharing between employer and employee.
• A MERP is more flexible than a carrier-integrated HRA, allowing employers to switch insurers without affecting MERP benefits.
• An HRA is usually more standardized than a MERP, while a MERP allows building multiple plan designs for employees with different benefits on top of a single underlying plan.

A Health Savings Account

An HSA is a personal savings account for healthcare expenses that pairs with an HDHP. Like a MERP, it allows employees to make pre-tax contributions, and employers may also contribute if they choose. Like both HRA and MERP accounts, an HSA can help employees offset out-of-pocket costs for various medical services within the limits of the IRS guidelines. Unused funds in an HSA can roll over from year to year.

A Flexible Spending Account

Like an HSA, employees contribute their pre-tax dollars to an FSA, and employers may also choose to contribute. FSA funds can cover a broad range of out-of-pocket medical costs. The main differences are:

• An FSA can pair with any healthcare plan, while an HSA can only pair with an HDHP.
• FSA funds don't automatically roll over year-to-year like HSA funds.

How Offsetting Deductibles Benefits Employers and Employees

Using a MERP or similar strategy to offset deductibles can be a win-win for employers and employees. Benefits of offsetting out-of-pocket with a MERP include:

• Employer cost savings: A MERP plus HDHP combo allows employers to spend less on premiums while minimizing the deductible amount employees need to cover when expenses come up.
• Employer tax advantages: Reimbursements toward employee healthcare deductibles through a MERP are pre-tax contributions, which allows employers to reduce the amount of tax their business owes.
• Employee health and satisfaction: Offsetting deductibles with a MERP ensures employees can afford the care they need when they need it. Knowing they can cover these costs helps them stay healthy and productive throughout their working lives. This assurance can help improve employee satisfaction and engagement.
• Employee cost savings: A MERP allows employers to contribute to their employees' healthcare expenses through reimbursements, keeping their net expenditure on out-of-pocket medical costs down.
• Employee tax benefits: Reimbursements received for eligible medical expenses are not considered taxable income, according to IRS Code Section 105. This categorization means employees pay less tax than they would if their employer included the same amount of money in their salary and left them to cover their own deductibles.

Offset Deductibles With The Difference Card

Offsetting deductibles through a MERP or other strategy is a financial win for both employers and employees. For customizable MERP solutions with a track record of phenomenal savings, explore The Difference Card.

Since 2001, The Difference Card has saved its clients an average of 18% on annual health insurance costs — amounting to nearly $1 billion in total savings — and counting. Each client gets a dedicated account manager, customer service support within a minute and their claims processed within two business days. We also provide HRA, HSA and FSA solutions, giving our partner producers and clients a toolkit of proven options to offset healthcare deductibles and see the savings.

If you're a producer looking to help your clients save more or an employer wanting to reduce your healthcare spend, you'll see the difference with The Difference Card. Request a proposal today to learn more about our custom healthcare solutions.