HRAs are arrangements that allow
employers to reimburse their employees for out of pocket
medical expenses up to a pre-determined maximum. The
reimbursements are tax free to the employee and tax deductible
to the employer. The employer may allow employees who
are reimbursed less than the maximum to roll over all or part
of the remaining funds for use in subsequent plan years. HRAs
may only reimburse employees for medical expenses incurred
while they are participants in the HRA plan. Also HRAs must be
funded exclusively with employer funds (salary reductions are
not permitted) and generally the same benefits must be
provided to all participating employees.
Other than these fundamental rules, the employer is free to
design an HRA to best meet its needs and the needs of its
employees. Among the plan design decisions left up to the
employer are annual employer HRA contributions, the amount
employees are allowed to roll over from year to year, what
types of medical expenses are eligible for reimbursement and
whether employees may be reimbursed for the medical expenses
of spouses and dependents. Employers may also modify the terms
of their HRA from year to year in order to phase in changes
that will maximize premium savings and employee satisfaction
over the long term.
HRA Simple The employer maintains the
current fully insured coverage only raising the Plan
deductible significantly (for example $2,500). The employees
receive the same benefit design as before (deductibles,
co-insurance, etc.) Co-pays stay in place at this point to
reduce exposure and employee resistance to change. The only
reimbursements from the HRA would be from the insurance
company’s Explanation of Benefits (EOB).
How this can help – Premiums have reached the
critical point where alternatives must be given consideration.
Insurance carriers are responding with higher deductible plans
that in certain situations may give enough premium discounts
to make this design structure substantially less expensive
than lower deductible plans. As more carriers introduce the
higher deductible plans, the premium discounts should grow
even more favorable. Additionally, this may be the only option
for groups with renewal obstacles (ongoing claims).
HRA Plus The employer can further
reduce premiums by removing co-pays for office visits and
prescriptions. The plan still retains its provider networks
and discounts. The plan may or may not expand the HRA coverage
to allow reimbursement for expenses not covered by the fully
insured plan (such as elective vision, dental, etc.). This
plan can also be integrated with a Flexible Spending Account
to provide employees with tax savings to pay such non-insured
expenses.
How this can help – Premium costs are further
reduced because the plan is no longer pre-funding office
visits and prescriptions. Employees become aware of the full
cost of their health care choices up to their deductible
(while benefiting from network discounts). This promotes cost
efficient health care decisions by employees and reduces
over-utilization.
Rollovers of Unused Amounts The plan
allows all or a portion of the participant’s unused HRA to
roll over for their use in subsequent years. There are many
options pertaining to the rollover aspect of HRA plans. If
correctly designed, they should be a very positive employee
benefit.
(Rollovers) How this can help – Employees have even
more incentive to make cost efficient health care decisions.
Employees who accumulate balances can select policies with
even higher deductibles because of their reduced potential
personal exposure. A hidden benefit to employers is that
accumulated HRA funds act as a "Golden Handcuff" for
employees.
