The percentage of employees enrolled in high-deductible health plans has significantly increased during the past five years.
During the first quarter of 2013, 30.3% of group health care plan participants were enrolled in a high-deductible plan, up from 17.1% in 2008, according to a National Center for Health Statistics report. The report defines a high-deductible health plan as one with deductibles of at least $1,250 for individual coverage and $2,500 for family coverage in 2013.
With the growth of high deductible health plans, health reimbursement arrangements (HRAs) and health savings accounts (HSAs) are also on the rise. However, many employers in the public sector are not familiar with these types of plans.
In a recent 15-minute Webinar, WEA Account Executive Michael Schwitzer took a look at health reimbursement arrangements. Below is an edited transcript from the Webinar.
What is an HRA?
Michael Schwitzer: An HRA is known as a health reimbursement account, or health reimbursement arrangement. It's often used with a high deductible health plan. When an HRA is combined with a high-deductible health account, it is used to pay medical expenses not covered by the insurance policy. Medical expenses below the deductible can be paid for through an HRA.
Why consider an HRA?
Michael Schwitzer:Control and flexibility. The employer has control of the whole account and determines the flexibility of the account and what the funds can be used for.
The employer also retains unused funds in the account. What that means is, at the end of the year, if the employee doesn't spend all the funds in the HRA account, the employer can keep those funds.
HRAs are also non-portable. The employees do not have access to the money. From a financial perspective it's known as notional dollars. The money is only spent when the employ submits to the HRA for reimbursement.
Disadvantages of an HRA
Michael Schwitzer: There are four notable disadvantages: Employees cannot contribute to the account; there's typically less consumerism than an HSA; there's more legal compliance (ERISA, COBRA, etc.); and an HRA vendor is required.
- In an HRA, the employee only has access to the dollars for medical expenses. The employer determines when the money is actually being used for that individual.
- There's typically less consumerism than an HSA, where the employee is responsible for all dollars underneath the deductible. The employees actually see and utilize those dollars how they see fit in an HRA.
- An HRA vendor is always required. The two vendors that partner with the WEA Trust can do direct feeds to the vendors so the employees do not have to fill out any paperwork in order to get reimbursement.
- Legal compliance: With an HRA, we have to worry about ERISA, COBRA, HIPPAA, ACA and all the other issues that need to be in compliance with a regular medical plan.
How does funding work?
Michael Schwitzer: From a funding perspective, the employer contributes all money to the account of every individual member under the medical plan. The money has to be allocated on the employer's expense line for financials each year in order to determine what money can be spent.
Because the employer funds 100% of those dollars, the employee has access to that at any point and time for their medical expenses. But the money is not portable. The employee can't cash out the money like under an HSA, where the employees can spend the money however they see fit, as long as it's for medical expenses.
One unique HRA feature that employers tend to use is the carryover function. Employers can take a portion of leftover dollars and roll them over year to year, or roll over all the leftover dollars year to year. It depends on how they want to do it. It's usually a 3-year cycle where employees can build up the money in the account and utilize it for any expenses that they have toward their medical plan.
What else should we remember about an HRA?
Michael Schwitzer: The employer, when looking at the plan they are going to pick, has total control. For example, look at a $1,000 deductible plan. The employer decides they are going to contribute $500 into the HRA that the employee can utilize for medical expenses. The employer can then decide if the employees use their money first, the HRA dollars first, or any combination in between.
You can get as complicated as you want when you design these plans. Typically, the employee pays the first $500, the employer pays the next $500 through the HRA, then the deductible is met and the rest of the plan flows appropriately.
What should employers know about contributions?
Michael Schwitzer: From a timing of contributions, that can be done as often as you see fit. That can be done on a payroll cycle, monthly cycle, quarterly, or annually. That is also up to the employer.
Also, medical expenses that are reimbursed can be limited. In the situation today, you can limit it and not include office visit copays, or pay for copays and exclude Rx. You have a host of different scenarios that you can do when you design these plans.