HRA

[Krono]

So..what in tarnation is an HRA?

What are the advantages and disadvantages to the employer?

What is the airspeed velocity of an unladen swallow?

 

[somarco]

High Deductible Health Plans(HDHP) with Health Savings Accounts (HSA)

As for your last question . . . ask Linda Lovelace.

 

[HIU#1]

An HRA is an agreement between an employer and an employee(s) to pay some portion of a high deductible health plan based on actual incurred claims - like a "promise to pay" if there is a claim. If there isn't a claim the employer doesn't pay anything.

HRA stands for Health Reimbursement Account(aka Arrangement). An HSA is a totally different plan, also based on a hgh deductible health plan, but an HRA high deductible health plan could easily be a plan that would not qualify to allow the insured to have the separate savings account (HSA). Just because you have a high deductible health plan doesn't necessarily mean you could establish an HSA - only if it is a "qualified" HDHP. There is a difference.

Sorry - didn't mean to get carried away!

 

[Mr. Bill]

Not only that, but the biggest difference (in how it was explained to me, so you can blame my Kaiser rep if I'm screwed up) is that:

an HRA is an employer-driven account. The employer deposits money into the account for the benefit of the employee while initating a HDHP. Should the employee not utilize the account, the employer doesn't have an ongoing obligation to add to the account beyond the deductible (during the year) and the balance reverts to the employer upon separation from service.

an HSA is an employee-driven account, alongside a HDHP, again qualified just like the HRA, except that the employee deposits money into the account up to the annual limitations, and can continue to deposit on an annual basis. At all times, the employee is responsibile for the investment choices of the account, and since the employer doesn't control it, it is simply an asset of the employee and separation from service doesn't change the account one whit. Wit? I dunno.

I personally would argue that an HSA is easier to deal with. Although the reversion element sounds like a pretty good deal from an employer standpoint, it sure seems like just another PIA program to have to babysit.

 

[HIU#1]

Hmmmmm. Well you're pretty close. One clarification would be that the HRA often isn't funded and it's not required. Some employers do fund an actual "account", but the A in HRA truly stands for Arrangement and there is no requirement to fund the accounts to begin with.

On the HSA side, both the employer and the employee can fund the savings account as long as the total doesn' exceed the allowed amount for that calendar year.

Since the HSA is personally owned, the employee does take it with him/her when leaving the employer, so it makes sense for an employer to deposit in monthly increments to the savings account since there is no recourse for the employer to get any of the money back if he pre-funds the savings account and the employee leaves. The savings account is as much theirs as is their checking or regular savings account is.

We're really not seeing much in investment choices at this point unless there is 2-3k in the account then they can a little more sophisticated. Up to that point at best the bank might waive fees, but it's really treated more as like passbook savings until you hit those limits.

I have all 5 of my staff on an HSA now and I "seed" their savings accounts each month to encourage them to put money in of their own.

Most of the time we find the HRA to be more of a starting point in the Consumer Directed approach and you're right, the HSA is much easier to deal with. If you can get around the acronyms and jargon, it's really pretty simple.

 

[Mr. Bill]

Cool, thanks, I meant what you said but didn't make it all perfectly clear. It should clear it up for everyone, though!

 

[Delta76]

The key advantage of an HRA is maximum flexability. You don't have to have a qualified high deductible plan like an HSA, you can design it to pay for what you want and in the porportion you want.

For example:

The employer wants to limit the number of office visits he pays for his employees. He can put together a plan design that has a high deductilbe (ex. $3000, then 100% after) with a prescription co-pay. Then he can set up the HRA to reimburse his employees for the first $1000 of office visits each year, then the employee is on his own.

or

He could split the bill 50/50 with the employees (or whatever % he deems appropriate) until the $3000 mark is met.

or

Any other combination you can think of.

HRAs really give you the ultimate in plan design. They can be a pain in the ass unless you have a good administrator.

 

[HIU#1]

Yes on the pain in the you-know-what without a good administrator! The other real trick is reeling in the employer (and the producer sometimes!) so he/she doesn't get so far "out there" that it is a pain to administer, and possibly even put the employer in jeopardy cash-flow wise.

Smaller employers (under 25 give or take) are much better going with a carrier that has a "canned" approach to the HRA design (what the employer will reimburse or not reimburse). It's not a guarantee and the employer still should be concerned about his cash flow especially in the early part of the year, but at least there is some actuarily sound basis for the plan design.

Either way, a good producer needs to maintain control of what is being recommended or an employer can really get in trouble with the wrong plan design with an HRA.

Where the HRA can come in handy is when the employee base just isn't savvy or responsible enough to go the HSA route. Since the core HDHP medical plan used for the HRA does not have to be "qualified", you can go the high deductible route with a partial reimbursement of the deductible by the employer, yet keep a drug card which isn't allowed on the HSA and is one of the hardest things for employees to give up.

 

[moonlightandmargaritas]

Wow, saw some HRA "misinformation" in this thread and wanted to clear it up.

HRA = Health Reimbursement Arrangement, not ever "Account" - there is no account of any kind.

It has to be 100% employer paid - no ee contribution allowed! There is nothing for the employer to pre-fund.

The employer sets up an arrangement whereby they will reimburse employees (designated by "class" if they like, as long as it's not "top-heavy", like 401k limits), or independent contractors UP TO a maximum monthly amount.

Employees can be reimbursed (up to the maximum amount) for qualifying out of pocket medical expenses, health insurance premiums (either group or individual, doesn't have to be a HDHP), etc.

 

[HIU#1]

Yep, you're right on the difference of Account versus Arrangement. From the onset it has been an "arrangment", but we have a number of carriers now calling them Accounts in our state. Heaven forbid that you'd argue with the big A! Drives me nuts too - didn't mean to mislead anyone on that point. Thanks!