In the employer-based system that I have created, the Health Reimbursement Account (HRA) is funded by the employer with untaxed revenue and is used to pay healthcare claims for any employee after his or her individual or family HSA annual contribution has been exhausted. HRAs currently exist and current law places no limit on the amount that an employer can deposit into an HRA. However, once the funds are deposited into the HRA they can only be used to pay healthcare claims. If the funds are used for any other purpose, the employer is subject to taxation and fines on the funds removed from the account. Current law under Section 419 of the IRS Code also provides for taxation of any funds remaining in the account beyond what is needed to pay 13 months worth of healthcare claims.
Companies that self-fund healthcare currently utilize HRAs to do so and self-fund because it is about 30% less expensive to do so when compared to the cost of purchasing health insurance for their employees. Recognizing this, employers limit their HRA contribution to what they anticipate spending over the course of a year.
My model will require changes in the laws governing HRAs. Presently, employers are prohibited from coupling an employer-funded and owned HRA with an employee-funded and owned HSA. Changes in the laws governing HSAs and HRAs will therefore be needed to enact the model that I have created. Furthermore, it will be necessary to amend Section 419 of the IRS Code to eliminate taxation of retained funds in an employer owned HRA if we are to create the funds to exceed the need. Were Section 419 of the IRS Code thus amended, companies could deposit into an HRA account the exact same funds that they would otherwise spend on a health insurance policy from a traditional insurer. However, they would now retain the 30% previously saved in their HRA account untaxed. Do this annually along with an 8% return on investment of those funds and the average company with 100 employees will have grown an HRA account in excess of $13 million over 15 years. At this point, the investment return on the account is able to replace the employer’s annual contribution and the employer no longer need fund the account. As long as utilization rates do not change, the account will continue to double every 15 years even without further employer contribution.
The advantages of this model to the employer are numerous. Health insurance premiums have doubled over the last decade and are likely to double or triple over the next decade. Therefore, instead of spending 2-3 times more on healthcare in 15 years, the employer will have no healthcare related expenses. This will free up capital to expand the business, develop new products or service lines, eliminate debt, increase advertising, hire new employees, and/or increase wages. Additionally, the HRA account is an asset owned by the business and consequently increases the value of the business. If the business is publicly traded, this should improve the share price of the company. If the business is privately held, this is an asset to be factored into the value of the company when and if the company is sold. The funds retained in the HRA account can also allow the employer to initiate meaningful preventive healthcare programs that will further limit employee healthcare expenses, reduce employee absence due to illness, and improve productivity. Finally, as the account doubles every 15 years, individuals retiring after 30 years or more with the company could retain coverage in retirement and thus lessen the burden on Medicare.
A third party administrator (TPA) is needed to process healthcare claims and pay the healthcare professional providing the service. This can be largely automated and should account for no more than 10% of total healthcare cost. The TPA is hired by the employer and paid by the employer.
To prevent a catastrophic claim from derailing this plan, the employer also purchases a stop-loss policy. This is generally a low-cost group policy that provides payment for healthcare expenses after claims paid by the company exceed a set amount. In addition to protecting the employer from catastrophic loss and insolvency, these plans protect the employee from loss of healthcare coverage in the event of catastrophic claims.
Finally, this model includes a well-managed investment vehicle coupled with the employee-owned HSA funds and employer–owned HRA fund to provide for safe and consistent return on investment.
This approach to the finance of healthcare is substantially more affordable than anything that either political party is proposing. However, this will only happen with your assistance. Abandoning employer-sponsored healthcare and letting your employees fend for themselves in the health insurance marketplace will prove to be a costly mistake. Precipitous rises in healthcare costs will only lead to demands for higher wages from both employees and political leaders. This will lead to higher payroll taxes and higher corporate tax rates.
Your choice is simple. You can continue to pay endlessly rising outrageous premiums for healthcare insurance that pays for less and less each year. You can continue to deal with a bureaucracy that is unconcerned with your needs. You can put your faith in our elected officials in Congress to finally place your needs and concerns above their self-interest. Or you can join with me and create a movement that will force our elected officials to act in the interest of all Americans. Healthcare is not a blue issue; nor is it a red issue. It is an issue that affects us all. And because it is an issue that affects us all, how we handle our healthcare will define our country. I am asking you to join me in building a better model for healthcare. As a registered 501(c)(3) educational nonprofit, your donation is entirely tax deductible. With as little as a single $10 donation from enough people we can drive a media campaign through print, radio, television and online advertising to force the changes in our tax laws that will enable us to create the funds to exceed our healthcare needs. With your support we will restore the doctor-patient relationship vital to responsive healthcare and eliminate the intrusion of managed-care bureaucrats. Medical decision-making should be between you and your doctor—no one else. With your support this will once again be the case. With your support we can and will have unlimited access to high quality, affordable healthcare. With your support we will build a better future for not only ourselves but for generations to follow.
Sustainable healthcare reform is within our reach. Donate now and join us today to make it a reality or for information on becoming a Corporate Sponsor, click here.
Modern Day Alchemy—the Sustainable Healthcare Model proposed by us converts healthcare from an employer liability into an employer asset. Employers should be rewarded, not punished, for funding our healthcare. The Sustainable Healthcare Model rewards employers by creating an asset owned by the employer.