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Employer
Services
Health Reimbursement Arrangment FAQ's
- Why are HRAs becoming so popular?
- Why would an employer offer an HRA?
- FSA vs. HRA - What is the difference?
- Why offer an HRA in addition to an FSA?
- How Will an HRA Benefit Me?
- How does an HRA provide more choices and control?
- What do you mean by Carrier Independence?
- What type of insurance plan do I need to offer?
- Can I use this with a PPO / HMO?
- Do I even need insurance?
- Can I design wellness benefits?
1. Why are HRAs becoming so popular?
HRAs have become popular because of their success when designing a benefit package which provides quality health care within a manageable healthcare budget.
The regulations provide you with the flexibility you need to tailor an HRA to your budget while fulfilling the needs of your employees.
Back to question list
2. Why would an employer offer an HRA?
Employers today are being faced with a tough decision— increase the cost of health care to their employees or decrease the amount of health coverage.
Neither option is desirable. An HRA can be a powerful alternative. The employer can purchase high deductible health coverage providing quality coverage at an affordable rate and then subsidize the employee's out-of-pocket expenses through HRA funding.
The employer saves money while the employees still have affordable health care.
This creates a more stable healthy environment while making good financial sense. The employer provides health coverage to the employees at a rate that all can afford with added choices and control for the employee.
Back to question list
3. FSA vs. HRA - What is the difference?
There is a common misconception that an HRA is simply an FSA without the use-it-or-lose it rule. While on the surface that may seem so, it is definitely not true.
No employee contributions. An HRA is funded solely by the employer. No employee contributions are allowed.
No use-it-or-lose rule. When an employee participates in an FSA, the employee needs to be careful in estimating expenses because if the employee does not use all the money, the remainder will be forfeited at the end of the plan year. In an HRA, the employer has the option of letting the employee carry-over all or a portion of the unused funds.
No uniform coverage rule. In an FSA, the entire election amount is available for reimbursement on the first day of the plan year. However, in an HRA, the employee can only be reimbursed for the amount the employer has contributed to date less any prior reimbursements. The employer has the option of contributing monthly, quarterly, or annually.
No mandatory twelve-month plan year. While most employers will have a twelve-month coverage period, it is possible to have a shorter coverage period.
No requirement that expense must be incurred during plan year. The regulations do not require the expense to be incurred during the plan year; but the employee must have been a participant in the HRA when the expense was incurred. However, the employer has the option of allowing this or not
Back
to question list
4. Why offer an HRA
in addition to an FSA?
Employees cannot contribute to an HRA, and typically expect to have more
expenses than can be reimbursed from the HRA. By offering an FSA in addition
to the HRA, the employees will be able to set aside tax-free funds to
pay for these additional medical expenses.
An FSA is very beneficial for employers. Any time an employee saves on
payroll taxes, the employer has corresponding savings.
Back to question list
5. How will an HRA
benefit me?
Every employer is faced with increasing premiums for their health
insurance and an HRA is a viable option to combat those rate increases.
With HRAs, you can . . .
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Back to question list
6. How does an HRA
provide more choices and control?
An HRA's flexibility gives an employer the opportunity to design the HRA
with the features that the employer designed. Here are some of the choices
that an employer can make.
Linked vs. Stand-Alone (Unlinked). The first decision is whether the HRA
is or is not linked to the employee's health insurance policy. A linked
policy is designed to pay deductibles and/or co-pays under the policy
and the employee is required to participate in the health insurance. A
stand-alone or unlinked policy is not connected with an insurance policy
in any way.
Tiers, Deductibles, and Co-Pays. Now you need to decide
on how the HRA is set up. Are you going to have tiers--that is, are you
going to have different limits for single employee, family, and so on?
Do the employees have a deductible to meet before reimbursement begins?
Are there co-pays required? You can set all these variables up
for HRAs.
Carry-Over Option. The regulations permit, but do not
require unused funds to be carried over to the next coverage period. You
have the right to decide whether carry-over is allowed and to put restrictions
on the carry-over. For instance, you can set the maximum carry-over to
be a certain amount or a certain percentage, and you can set a limit of
the amount of accumulated carry-over.
Maximum Reimbursement. You can set the maximum reimbursement
an employee may receive during a coverage period. This is a moot point
when you first set up an HRA, but after a length of time participating
in the HRA and accumulating carry-over funds, an employee may accumulate
sufficient funds to create a cash-flow problem if the employee tries to
claim reimbursement for the entire amount. By setting a maximum reimbursement,
the funds can be reimbursed over time.
Spend-Down Option. While you do not have control over
COBRA regulations, you do have the option of offering, as an alternative,
Spend-Down Option where employees losing eligibility under the HRA are
given a period of time where they can be reimbursed for eligible expenses
incurred after the eligibility loss from accumulated funds. (This does
not replace COBRA, but gives the employee the right to choose between
COBRA or Spend-Down.) No employer or employee contributions are made after
loss of eligibility. You have the choice of deciding what events trigger
eligibility, how much of the accumulated HRA funds are converted into
Spend-Down funds, or how long the employee has to draw out the funds.
Back to question list
7. What do you mean
by Carrier Independence?
HRAs are not dependent on the insurance carrier. Changing insurance carriers
does not mean that you have to change HRAs. In fact, you can carve out
certain parts of the policy such as vision and dental, and set up an HRA
to handle those expenses.
Your insurance premiums will decrease, and you will have complete control
over the Health/Vision HRA.
Back to question list
8. What type of insurance
plan do I need to offer?
A. Although an HRA can be tailored to any health care coverage, the most
profitable approach involves the traditional High Deductible Health Coverage
(HDHC).
To take this approach, the employer first purchases high deductible health
coverage at significantly lower premiums, and then creates an HRA to cover
the difference between the previous deductible and the HDHC deductible.
Taking this approach will save you money without creating more out-of-pocket
expense for your employees. That's rarely possible in today's world.
Back to question list
9. Can I use this with
a PPO / HMO?
Yes, you can by designing the HRA to cover all or a portion of the deductibles
and copays. While this approach usually does not result in the dramatic
overall premium reduction of HDHC, it can enhance the insurance's benefit
structure.
Back to question list
10. Do I even need
insurance?
Some employers set up an HRA instead of providing a supplemental health
plan or portions of the major health plan. For instance, the employer
would set up an HRA covering dental and vision and either drop the vision/dental
supplemental plan or carve out that portion of the insurance policy.
You can set up tiers (Single, Family, etc.), deductibles, and co-pays.
Everything you would find in an insurance plan, but this time you have
total control.
Back to question list
11. Can I design wellness
benefits?
A. Wellness programs have been an important component in HRAs for quite
some time. Employers appreciate the advantages of having healthy employees.
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Healthy employees are the type of employees that all employers want!
