  |
||
|
The concept is very simple: Give employees access to a fund they can use for their current health care expenses or set aside for their health costs down the road, and perhaps they will spend the money as carefully as if it were there own. They may even spend better, and become more involved in making decisions about their own care. That's the core idea behind what has been dubbed by the Treasury and the IRS as a Health Reimbursement Arrangement (HRA). An HRA may be used to pay for both out-of-pocket health care expenses and health coverage premium costs. Any unused HRA balances may be carried forward from year to year. HRA's should not be confused with Health Savings Accounts. While development of all such plans has been in the fast lane for a few years now, HRAs are not really anything new (See Section 105). They are simply a twist on Section 105 Medical Reimbursement Plans, which have been around forever as "self-funded" or "self-insured" medical plans. The principal questions that the IRS & Treasury clarified have to do with carryovers, cash-outs, and interactions with FSAs (Cafeteria Plan Flexible Spending Accounts). Carryovers are now permissible for HRAs that are funded entirely by the employer, HRA plans can work with FSAs, and cash-outs, other than for medical reimbursement, are absolutely prohibited. These new plans go by different names, variously known as defined-contribution, consumer-directed, self-directed, consumer-driven, and so on. Health Savings Accounts use as its basis the language in Section 105 of the IRS Code, while attempting to combine the best aspects of Medical Savings Accounts, HRAs, and FSAs. While these plans are simple in concept, they can be as complex to structure as any other type of coverage. For instance, unless the HRA is "unfunded", that is, the benefits are paid out of the general assets of the employer, the funds become plan funds subject to ERISA and must be held in trust, pursuant to a written trust intrument, with an annual independent audit requirement. Moreover, when crafting HRA-style plans, several key decisions must be made, including:
How Does it work? An employer establishes an HRA by adopting a formal plan and distributing a Summary Plan Description to all eligible employees. The SPD describes, among other things, the amount of money available in each employee's personal health account for the coverage period. As eligible expenses are submitted, the employee's personal account is reduced and paid to them on a nontaxable basis. At the end of the HRA coverage period, a new period begins with additional employer funding available. Plus, the employee could still have available dollars leftover from the previous period. The money is not forfeited at the end of the year, therefore "rewarding" those that spent their benefit budget wisely. For those employees who accumulate their benefit cash from year to year, they could cushion themselves against the costs involved in a catastrophic disease or accident, or even fund health benefits after their retirement. Employees could also use their account balance to purchase long-term care insurance. There is no 'payout', though, if an employee leaves. While it is certain that employers of all sizes could take advantage of HRAs, many factors come into play when determining the advisability of adopting an HRA. Indeed, an HRA should not be considered to be just a high deductible PPO plan with an HRA on top. The ability for the consumer to actively participate in the purchase of their health care needs is crucial for the concept to work, and this involves an active employer counseling element, coupled with web-based information and other technologies designed to provide substantial information for the health care savvy consumer. Unfortunately, many small group plans do not have enough cost savings within the higher deductible plans for an HRA to make financial sense for the employer, since his costs would even be higher. It is clear that the best initial candidates for HRAs are larger employers (5000+) who are most certainly using self-funding for their medical benefits. In fact, Coors Brewing Company has seen significant improvements in health care costs since moving to a consumer-driven model. With that thought in mind, smaller employers who may be self-funded, or who can make the HRA concept work with their particular premium plan, should be encouraged to look at an HRA as a way to get their employees involved in the health care paradigm, not just as a new way to cost shift. An HRA's ability to carry over unused balances and to reimburse the premium costs of health and long-term care coverage gives HRAs a fundamentally different role than health FSAs. Freed from the use-it-or-lose-it requirement of health FSAs, HRAs can be structured to encourage employees to become responsible managers of their HRA balances. Employers have considerable latitude in designing HRAs, which will ensure that this innovative form of health plan design can be used to fill a range of roles and that it will continue to evolve in the years ahead. One final note of interest: Under IRS guidance, employees have individual HRA accounts to which the employer credits hypothetical dollar amounts, The indvidual account is merely an unfunded liability of the employer. The employer is not obligated to provide a departing employee with any balance available to him, an important distinction from an HSA, which becomes the sole property of the employee when funded by the employer. In fact, unlike an HSA, the employer never relinquishes control of the money unless there is a medical claim If interested, please contact us for a professional evaluation regarding HRAs for your firm. Return to Section 105 Return to Executive Benefits Return to the Main Page Questions? Comments? Email me... |
||
|
|
|
|
|
|