Health Reimbursement Arrangements (HRA) Save money now on your health care costs!   Employers of all sizes are searching for affordable health insurance coverage for their employees while still concentrating on their core business. That search is especially intense among small businesses, where a few dollars can make a significant difference.   To help members address rising health care costs, CBIA recently introduced a no-cost Health Reimbursement Arrangement (HRA) administration service for employers participating in CBIA Health Connections 2 (HC2). HRAs represent one of the most successful alternatives in the consumer-driven health movement. By implementing an HRA with a corresponding HC2 plan design*, many small businesses have been able to achieve immediate savings in their health care costs.   * The HRA must be linked to only one of the following eligible HC2 plans: POS 20/40 1500; POS 20/40 2500; POS 30/45 3000; POS 30/45 5000; POS 2000.   Play Slideshow To get started, simply contact your insurance agent, or contact CBIA’s Tom Guerra at tom.guerra@cbia.com or 860-244-1160.

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Background How an HRA Works Guidelines HRAs and Wellness Programs Benefits to Employer Benefits to Employee

 

Background

 

An HRA is an arrangement under which an employer reimburses an employee for uninsured health or accident expenses incurred by the employee or his dependents. Health or accident expenses in this context are defined in Internal Revenue Code Section 213. HRAs are treated as a standalone plan that is placed alongside a conventional health insurance plan to reimburse amounts not covered by insurance. HRAs are more flexible for employers than HSAs in several ways including contribution amounts, rollover limits, retiree benefits and the type of health plans that can be associated with an HRA.

How an HRA works

• The employer decides to establish an HRA by setting up an HRA plan document which details covered expenses and sets the benefit parameters for the HRA. The employer may choose to couple this with an HC2 high deductible health plan.
• If the employer wants to allow the carry forward of dollar values, they decide on the percentage of remaining value or dollar amount to carry forward to future years.
• The employer can choose to self-administer the HRA, or outsource this to an independent administrator like CBIA.
• The employer or administrator prepares and distributes educational material for the employees.
• At the time of service, employees present their health insurance ID card and pay any co-pay or out-of-pocket expenses as they would in a non-HRA environment.
• After an employee receives an Explanation of Benefits (EOB) for a covered expense from their health insurance carrier, the employee submits the documentation to the employer or administrator for HRA claim processing.
• The employer or administrator validates and processes the claim, and reimburses the employee for the eligible expenses, up to the annual maximum established by the employer.

 

Guidelines

• Only employer dollars can be used to fund an HRA. This does not include funds that are considered employer dollars as a result of an election under a Section 125 plan. Funds may roll over from year to year.
• The fund parameters are set by the employer, but may include items allowed under 213(d), or simply cost-sharing for out of pocket expenses not covered by the high-deductible plan, such as deductibles, coinsurance, copays, and other cost-sharing.
• HRAs must be available for COBRA continuation on the same basis as other health plans.
• HRAs may be made available to terminating or retired employees but this is not mandatory.
• Employers may not gross up or bonus terminating employees an amount equivalent to the dollars that remain in their HRA.
• HRAs are not portable and remain with the originating employer and do not follow an employee to new employment.
• HRAs may coexist with Flexible Spending Accounts (FSA) and Cafeteria Plans as allowed under Section 125. The IRS notice requires that the HRA be exhausted before the FSA pays. However, an employer may set up their HRA plan document to require FSA exhaustion first.
• The HRA itself may not be tied to any salary reduction or deferred compensation program, although the accompanying insurance plan may be tied to a salary reduction. But the salary reduction may not exceed the actual cost of the insurance plan and may not be pegged to any level of HRA contribution.
• Many of the timing rules of an FSA will not apply to an HRA, so a mid-year enrollment will be allowed, as will reimbursements that cross calendar years or plan years.
• The same non-discrimination rules apply to the HRA as to other health benefit programs, although an employer can establish an HRA which rewards employees for healthy behaviors with additional HRA dollars.

HRAs and Wellness Programs

• Health Reimbursement Arrangements have tremendous potential to save benefit dollars over time. While a wellness program is not required, we recommend that HRA implementation be coupled with a wellness program that will lead to more healthy Plan Participants, thus leading to lower benefit costs in the future.
• The wellness program is designed to provide information related to overall health and wellness, and includes disease prevention and/or disease management and age specific screening recommendations. The intention is to engage individuals in the process of health promotion before they develop chronic illnesses that have the potential to affect their quality of life. For those individuals with a chronic condition, the focus is to educate the enrollee to be better informed about the management of their condition.

Benefits to Employer

• No need for employer to pre-fund the account
• Employer determines timetable for making contributions
• Employer determines the amount of contribution and amount of rollover to the next year
• Employer determines what happens to unused funds when employee terminates
• HRAs enable employers to utilize tax deductible dollars to reimburse employees for qualified medical expenses
• No comparable contribution - Reimbursement for each employee does not have to be the same.

Benefits to Employee

• HRAs are solely funded by employers, and many surveys indicate that employees prefer HRAs over HSAs, as employer money is used to fund out-of-pocket expenses. 
• HRAs are COBRA eligible benefits
• An HRA may cover both current employees and retirees, and their spouses and dependents.