Why we restructured our health benefits

As a software company, we’re always improving our products, and we apply this same mentality to our perks & benefits—iterating over time to continually improve them. And because we’ve open sourced our employee handbook, this evolution is fully transparent!

As part of this continual improvement, in March of 2022, we launched an entirely new set of health benefits to replace our prior offering. This post aims to document what we learned from our prior benefits, why we switched, and what we discovered along the way.

The old design

To understand why we restructured our health benefits, it helps to understand what we were switching away from. Previously our sole health benefit was very simple, at least on the surface. We offered a health reimbursement arrangement (HRA) that would reimburse team members for almost any health-related expense.

There are two neat aspects of HRAs that make them attractive:

1. They allow each employee to pick the exact combination of health, dental, and vision plans to meet their individual needs. There are inherently more options on the open market than what an employer could ever offer.
2. They can reimburse employees for more than just insurance premiums. Copays, coinsurance, over-the-counter medicine, and many other normally out-of-pocket expenses are also reimbursable.

However, over time, we noticed that HRAs weren’t without downsides. There are more, but here are some of the most notable drawbacks:

1. Many people are unfamiliar with HRAs and/or uncomfortable with the idea of purchasing insurance plans on the open market. Even if you are comfortable with the process, it’s more work than purchasing a plan through an employer, particularly because of how many options there are on the open market.
2. Anecdotally, it seemed as though the insurance offerings available to individuals on the open market were growing more limited, lower quality, and more expensive over time, as compared to the options an employer could offer.
3. Our particular HRA administrator necessitated a fair amount of manual effort that wasn’t going to be very scalable as our team grew. Their software was also pretty outdated and occasionally buggy, which caused periodic headaches.

In late 2021 we decided that the accumulation of these downsides warranted investigating other options. So we collected feedback from our team members and worked with them to design a new set of benefits that would address these concerns.

The new design

We investigated other HRA administrators that could alleviate some of the concerns mentioned above, but we ultimately chose to switch to employer-sponsored insurance plans. Given their widespread use, people tend to be more familiar with them; plus, their streamlined onboarding process makes it quick and easy for new team members to get set up with insurance. We’re also able to offer plans that aren’t available on the open market in Texas, like platinum tier and PPO plans.

Employer-sponsored insurance plans also offer some additional financial benefits above and beyond what HRAs can offer:

1. Premiums for identical plans tended to be considerably cheaper when offered through an employer versus purchased on the open market.
2. Although HRAs reimburse team members tax-free, any portion of a premium that exceeded the reimbursement limit would have been paid for with after-tax dollars. With employer-sponsored insurance plans, the full premium is always paid for with pre-tax earnings.
3. Employer-sponsored insurance plans enable us to offer other tax-advantaged plans, like HSAs, FSAs, DCFSAs, etc. Effectively used, these can significantly reduce a team member’s taxes each year.

When designing these new benefits, we deliberately minimized the company contribution toward premiums, and instead, increased all starting salaries by $3,000/yr. Since our salary calculator is transparent and open source, you can actually see this change implemented here.

Why did we minimize the company contribution? Because the more a company contributes to an employee’s health plan directly, the more compensation that employee leaves on the table if they’re covered by someone else’s insurance (e.g., a spouse or parent). A salary increase, by contrast, doesn’t have to go toward insurance; it can be used for hobbies, travel, savings, or any other interest.

What we’ve learned so far

To date, the response from team members has been largely positive, with particular appreciation shown toward the amount of feedback that was gathered and the transparency that was offered during the process.

A large amount of research and preparation occurred before switching, and it was extremely useful to collect team members’ questions and get them answered by our benefits broker before making the switch. However, there were still a few hiccups along the way. Most of which were caused by poor/misleading communication on the part of our benefits broker.

If you’re embarking on the process of offering new employer-sponsored benefits, I’d recommend giving yourself more time than you think between open enrollment and the eventual start date. It’s also important to understand which benefits require participation to remain active and which do not, especially if you’re a smaller employer.

Conclusion

This isn’t the first time we’ve restructured one of our benefits to make it better. As before, we’re excited by the upsides this restructuring will bring, and pleased to be putting the drawbacks of the old design behind us!

If we seem like the type of company you’d want to work for, we may be hiring! Check out our careers page for more information.