Health Reimbursement Accounts (HRAs)
The future of health insurance funding is here

The end of extreme managed care is at hand and a new era of consumer-driven health care financing is beginning. Double-digit rate increases are commonplace in the health insurance marketplace today. With these rate hikes, employers are progressively more concerned with their health insurance premiums.

In the past, employers have resorted to the old stand-bys: raise deductibles, raise co-pays or pass along the increase to the employees. There is now a better way to compensate for these increases with a Health Reimbursement Account (HRAs). You may be asking yourself what is consumer driven health care and how can it help my company?

In 2002, the annual average premium for a family health plan having a $250 deductible was $10,020.00. The majority of employees do not spend more than $2,000 a year on their health needs. Consumer driven health care can bring these figures closer together. It can be defined by combining an employer defined contribution plan with increased employee responsibility and choices. So, how do you make employees more responsible for their health care costs? You provide them with an incentive.

HRAs will give the employees that incentive with control of their own healthcare reimbursement account. If the employee stays within their account limits, they have no co-pays or deductibles. Any money not used in the HRA account by the end of the calendar year will roll over to the next year. As the fund grows, year after year, the money could be used to fund future health care needs such as retirement healthcare expenses.

Ask yourself this question:

If your local supermarket came out with a new program in which you paid a fee of $100 a month to shop at their store and in exchange for that fee when you shopped at the store all you had do was pay a $.05 Co-pay per item. Would it matter to you if the loaf of bread you put in your shopping cart cost $1.00 or $10.00? The odds are you could care less as far as you care it costs $.05. Now you can see what's wrong with our health care system, there are no incentives for the employee to control costs. If you ask the average employee how much it costs for a doctor's office visit they will most probably answer $15.00 when we all know that visit most likely cost $80.00 to $100.00.

The HRAs are a win/win situation for both the employer and employee. The employer ultimately pays substantially less in health insurance premiums. The employee is given the incentive to try to keep there health care costs under $1,000 per year by not over utilizing the health care system (i.e., going to the emergency room for the common cold) and getting the best price on necessary medical expenses. In return they also get control over health insurance contributions and ultimately a HRA account that continues to grow and can be utilized for future health care expenses.

Advantages of a HRA

The employer can offer a high deductible health insurance plan and use the premium savings to fund the employee Health Reimbursement Account.
Similar to a Flexible Spending Account (FSAs) the employer can fund the employees individual HRA with pretax dollars but unlike a FSA the employee doesn't lose the money left in their account at the end of the year. Unused dollars may be rolled-over into the next year.
HRAs allow the employer plan design flexibility. The plan design may provide each employee with $1,000 annually to pay any covered medical expense. If that fund is exhausted the employee would be responsible for the next $1,000 (can also be funded pretax, FSA) of covered medical expenses. An insurance company would cover all expenses paid above $2,000 under a tradition plan, Indemnity, HMO, PPO, and POS. The plan could also provide for a Wellness Program to be paid for at 100% after co-pay, as an example.
HRAs allow the employees freedom of choice in healthcare planning while controlling their own costs
HRAs allow the employee to accumulate money for future healthcare needs like retirement healthcare expenses.
While an employee may not take the money in their HRA account with them if they leave the company they could use the money for COBRA premiums.

Health Reimbursement Accounts may not be suitable for all companies. Any health care program should be changed only through careful consideration and taking into account the impact of all parties involved. You should discuss your options with a Certified Employee Benefit or Risk Management Specialist.