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HEALTH REIMBURSEMENT ARRANGEMENTS 101 1 Share This Whitepape HEALTH REIMBURSEMENT ARRANGEMENTS 101 Customizing and Controlling Employee Health Benefits that Make Employees Happy
HEALTH REIMBURSEMENT ARRANGEMENTS 101 1
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HEALTH
REIMBURSEMENT
ARRANGEMENTS 101 Customizing and Controlling Employee Health Benefits that Make Employees Happy
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Hello. We’re glad you’re checking out our content. We just wanted to let you know that this content is a little bit behind the times. It’s still useful—but it’s not our freshest material.
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Copyright © PeopleKeep, Inc., 2017. PeopleKeep® is a registered trademark of PeopleKeep, Inc.
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Copyright © PeopleKeep, Inc. 2017. PeopleKeep® is a registered trademark of PeopleKeep, Inc.Personalized Benefits 20171017 V1.R3
Our storyOffering traditional group benefits sucks. Why? They’re too expensive, too complex, and too one-size-fits-all. PeopleKeep is a new way to offer benefits called personalized benefits. Most people believe benefits are the services a company offers, such as a health insurance plan or 401k. With personalized benefits, it’s the opposite. Companies give people tax-free money to spend on the consumer services they find most valuable. It’s as simple as wages. For small businesses that think offering traditional group benefits sucks, PeopleKeep is personalized benefits automation software that makes offering benefits simple, painless, and personal for everyone.
Today more than 3,000 companies use PeopleKeep to hire and keep their people across the United States. PeopleKeep is based in Salt Lake City, Utah.
To learn more about PeopleKeep, visit www.peoplekeep.com.
Ready to see how PeopleKeep can work for your company? Visit www.peoplekeep.com/demo to preview our software or click below to have a Personalized Benefits Advisor contact you.
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Copyright © PeopleKeep, Inc., 2018. PeopleKeep® is a registered trademark of PeopleKeep, Inc.
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The #1 Online Small Business Health Benefits Solution
Successfully transition to a health benefits solution that creates happier employees, reduces costs, and frees up time for meaningful work. Request a Demo.
Zane Benefits' Partner Program is an opportunity for insurance professionals to provide clients with custom Zane Benefits solutions. Request a Partner Evaluation.
DISCLAIMER
The information provided herein by Zane Benefits is general in nature and should not be relied on for commercial decisions without conducting independent review and analysis and discussing alternatives with legal, accounting, and insurance advisors. Furthermore, health insurance regulations differ in each state; information provided does not apply to any specific U.S. state except where noted. See a licensed agent for detailed information on your state. www.zanebenefits.com.
Happier Employees
With Zane’s solution, employees choose the health plan that
best fits their families' needs. Learn more.
Controllable Costs
Employers fix their costs by utilizing a
defined contribution approach.
Learn more.
More Time for Meaningful Work
Once implemented, Zane’s solution takes less than 5 minutes
per month to administer online.
Learn more.
Easy Transition
Zane Benefits’ implementation team will ensure a smooth and fast transition for
you and your employees. Learn more.
Ver. 2013.12.23.
HEALTH REIMBURSEMENT ARRANGEMENTS 101 3
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TABLE OF CONTENTS
PREFACE.…………………………………..………………….. 4
RISING HEALTHCARE COSTS..……..……………………… 5
WHAT IS AN HRA?……………………………………………. 6
THE ADVANTAGES…………………………………….…...... 8
COMPARE HRA, HSA AND FSA……..……..……….……… 10
REAL LIFE SUCCESSES…………………………………….. 12
HOW TO IMPLEMENT AN HRA.…………………………….. 14
ABOUT HRA ADMIN SOFTWARE…………………………... 15
APPENDIX: HEALTH REFORM & HRAS…………………… 17
ADDITIONAL HEALTH BENEFITS RESOURCES…………. 18
Important Note: Due to the Affordable Care Act (ACA) and associated regulations, some HRAs offered as a stand-alone benefit are not compliant with the ACA in 2014 and beyond. >> Contact Zane Benefits to review your current HRA or to learn about compliant defined contribution options for 2014.
(December 2013)
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PREFACE
GROUP HEALTH INSURANCE IS BROKEN
Continual increases in healthcare costs have adversely impacted U.S. businesses’ ability to
provide health benefits. Smaller employers have been particularly hurt, and many have
dropped group plans because they have become too expensive. Mid-size businesses cope
with rising costs by shifting more of the burden to their employees and their dependents. In
response, businesses of all sizes are taking a careful look at using Health Reimbursement
Arrangements, or HRAs, as an integral part of their health benefit plans.
THE SOLUTION: HRAS
HRAs provide an effective way for businesses to reduce their employee healthcare costs
without reducing employee benefits. HRAs allow employers to offer employees more choices
and provide better benefits per dollar. HRAs encourage consumer-driven healthcare, where
employees see where they are spending their health dollars and can make better-informed
healthcare decisions. This results in cost savings for the employee and employer.
The Problem
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RISING HEALTHCARE COSTS
Health insurance costs continue to rise faster than wages and inflation, and have more than
doubled since 1999.
SMALL BUSINESSES HIT THE HARDEST
A full 98 percent of employers with 200 or more employees provide group health insurance
plans for their employees. However, only 61 percent of employers with three to 199 employees
provide employee health plans, down from 68 percent in 2000. (The Kaiser Family Foundation,
2012.)
Health Insurance
98%
None 2%
200+ Employees
Health Insurance
61%
None 39%
3 to 199 Employees
Average Employer Cost One Year of Health Insurance*
Single Employee: $5,615 | Family: $15,745 * Kaiser Family Foundation, 2012
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WHAT IS AN HRA?
HEALTH REIMBURSEMENT
ARRANGEMENT
An HRA is a Health Reimbursement
Arrangement. An HRA is an employer-
funded plan that may be used to reimburse
employees for medical expenses, including
individual/family health insurance plans.
An HRA is not health insurance, but can be
used to supplement or replace traditional
group health insurance.
HRAs are notional arrangements; no funds
are expensed until reimbursements are paid.
In addition, reimbursements made are tax-
deductible for the employer and tax-free to
the employee.
All employees and former employees may
be eligible to participate in an HRA.
Employees need not have health insurance
coverage to participate; however, the
employer can require employees to have
insurance coverage to enroll in the
company’s HRA plan.
For employees, HRA reimbursements are
not taxable, and fund balances can roll over
to subsequent years.
Unless the employer decides otherwise,
employees cannot take unspent funds with
them when they leave the company; rather,
unspent funds remain with the employer.
Employers determine the allowance
(contribution) amounts, and there is no
maximum set for how much employers may
allocate to an HRA.
HRAs may be used to cover a wide range of
medical expenses. Employers have great
discretion in what they choose to reimburse.
These expenses include individual/family
health insurance premiums; health insurance
deductibles, copays and coinsurance; dental
and vision care; prescriptions; and many
other expenses such as smoking cessation
and certain weight-loss programs.
For a complete list of covered benefits, see
this slip-sheet on HRA Eligible Expenses or
contact Zane Benefits.
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TWO TYPES OF HRAS
In general, there are two primary types of HRAs:
Stand-alone HRAs and integrated HRAs
1. Stand-Alone HRA: A stand-alone HRA is not linked
to a group health insurance plan; rather the HRA is
the entire health benefits plan. Stand-alone HRAs
can reimburse for individual health insurance
premiums, as well as other eligible out-of-pocket
medical expenses.
2. Integrated HRA: The more commonly-known type
of HRA is one that is integrated with a group health
insurance plan. The integrated HRA is offered only
to those who take the group health plan and is used
to reimburse employees for out-of-pocket medical
expenses only (not health insurance premiums).
What’s in a Name?
A Stand-Alone HRA is also called:
Unlinked HRA ZaneHRA “Pure” Defined
Contribution
An Integrated HRA is also called:
Linked HRA Deductible-Only
HRA Group HRA
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HRA ADVANTAGES
Predictable Costs
Employers can determine their maximum
liability when setting HRA funding
amounts. No actual costs are incurred until
employees receive reimbursement. So to
the extent employees do not use all the
funds available to them, employers do not
have to pay the total amount allocated.
Employee Choice
When employees see the cost of
healthcare and can carry over unused
HRA allocations to use as they see best,
they become smarter healthcare service
consumers. They can decide whether or
not to incur a medical expense. This
typically results in better-informed
decisions and decreased healtcare
spending.
Flexibility
Employers can customize all components
of their HRA. If they wish, they may
integrate the HRA with various types of
health insurance. For example, employers
may choose to offer group insurance with
an HRA, or they may use the HRA to help
employees pay for individual health
insurance premiums.
Different Employees, Different Benefits
Employers can set up different benefits for
different employee classes. For example,
rather than allocate $200 across the
board, they can allocate $300 per month to
attract and retain hard-to-find
programmers and allocate $175 to another
class.
Tax Advantages
Employers may deduct the cost of an HRA
as a business expense under IRS Code
section 162. HRA funds are also allocated
to employees using pre-tax dollars;
employees are not taxed on
reimbursements received.
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HRA, HSA, AND FSA WHAT’S WHAT, AND WHAT’S APPROPRIATE?
Health Reimbursement Arrangements (HRAs) differ from Health Savings Accounts (HSAs)
and Flexible Spending Accounts (FSAs). Each has unique advantages and is appropriate for
different situations.
HRAs make sense when employers want to provide healthcare expense reimbursement,
whether or not the reimbursements are intended to supplement or replace health insurance.
HRAs are especially attractive for employers who want to provide employee health benefits
but have been priced out of traditional group plans. HRAs are 100 percent employer-funded
and controlled, and there is no maximum or minimum amount employers may contribute.
Generally, employees cannot take unspent HRA funds with them when they change jobs,
and self-employed are ineligible. In addition, HRAs allow reimbursement of employee
individual insurance premiums.
HSAs may only be used in conjunction with HSA-eligible high-deductible health plans. Unlike
HRAs, HSAs can include contributions from employers, employees, and/or third parties.
They provide an excellent option for self-employed and unemployed individuals purchasing
their own health insurance, if they can afford the out-of-pocket costs of a high-deductible
insurance plan. One major advantage of HSAs is that employer contributions are portable, so
employees can take 100 percent of the money in their HSAs with them when they leave or
change jobs. On the down side, regulations around HSAs are fairly complex, and most
employees have difficulty understanding how best to use them.
FSAs allow employees to pay for medical expenses with dollars deducted from employees’
wages before taxes, reducing the employees’ overall taxable income. FSAs are 100 percent
employee-funded. One drawback is that all funds in the FSA must be used by the end of the
plan year. If employees overestimate their medical spending, they lose any money left in the
FSA at the end of the plan year.
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THOSE 3-LETTER WORDS: FEATURES COMPARED
HRA HSA FSA
LEGAL AUTHORITY
IRS Guidance 2002-45 and IRS Code Section 105
Medicare Prescription Drug, Improvement, & Modernization Act of 2003 and supplemental guidance from the IRS
Internal Revenue Code Section 125
ELIGIBILITY
All employees and former employees at employer’s discretion, not self-employed
Anyone covered by an HSA-eligible high-deductible health plan
All employees except self-employed
QUALIFIED MEDICAL EXPENSES
Unreimbursed medical care expenses as defined by Internal Revenue Code section 213 including individual insurance premiums
Unreimbursed medical care expenses as defined by Internal Revenue Code section 213 and insurance premiums for unemployed individuals
Unreimbursed medical care expenses as defined by Internal Revenue Code section 213 and dependent care
NONQUALIFIED MEDICAL EXPENSES
Expenses not under Internal Revenue Code Section 213
Expenses not under Internal Revenue Code Section 213
Expenses not under Internal Revenue Code Section 213, Health insurance premiums under a continuation of coverage arrangement (e.g., COBRA), Health insurance premiums. Qualified long-term care insurance premiums
PURCHASE OF PLAN REQUIRED?
No Yes; purchase of HSA-eligible high deductible plan required
No
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HRA HSA FSA CONTRIBUTOR Employer Employer, employee or
third party
Employee
ANNUAL CONTRIBUTION LIMITS
No statutory limit; limits may be set by employer
$3,250/single* $6,450/family* *2013
$2,500 per employee, with annual inflation increases (as of 2013)
FUNDS CARRIED OVER TO NEXT YEAR?
Yes, at employer’s discretion
Yes No
PORTABILITY At employer’s discretion
Continued access to unused account balance if employee is no longer working for the employer. Withdrawals for non-medical purposes are subject to income tax and a 20% penalty tax. Once account holder reaches age 65 (Medicare eligibility age), becomes disabled, or dies, withdrawals for non-medical purposes are subject to income tax only, with no penalty.
Account cannot be maintained if the employee is no longer working for the employer
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REAL LIFE HRA SUCCESSES
TWO DIFFERENT BUSINESSES REALIZE SAVINGS & HAPPIER EMPLOYEES
10 EMPLOYEES, AND GROWING
A growing 10-person technology company in Kansas needed to offer health benefits to
retain key employees and recruit new ones. Group insurance proved to be too
expensive, and the plans were too difficult to administer.
Setting up an HRA that allowed employees to purchase their own health insurance (or
use their spouse’s plans) allowed the company to offer all 10 employees complete
health benefits for less than $100 per month per person.
38 EMPLOYEES, EXPANDED BENEFITS
A manufacturing firm in Pennsylvania had 51 employees. Before switching to an
integrated HRA, 38 employees participated in the group plan and the firm paid
$230,000 a year in premiums.
The company raised the annual deductible on its group plan to $5,000 per person,
dropping annual premium payments to $84,000 a year. At the same time, it
established an HRA to pay employees’ under-deductible medical expenses, which
cost approximately $37,000 a year.
Switching to an HRA saved the company $104,000 or 45 percent, including HRA
reimbursements and fees. Not only did the company save money, it was also able to
provide better benefits to more employees, including dental and chiropractic coverage.
The entire change occurred in fewer than 30 days.
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________________
HRAs are especially attractive for employers who want to
provide employee health benefits, but have been priced out of
traditional group plan.s.
________________
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HOW TO IMPLEMENT AN HRA PLAN IN FOUR EASY STEPS
• Your HRA administrator should get to know your business
• They will help you design, implement and manage the HRA plan
1. Choose an HRA Administrator
• Based on your specific business needs • Create all required plan documents
2. Design the Plan
• Inform employees via official documents • Obtain Summary Plan Document (SPD)
signatures 3. Distribute Documents
• Employees choose health plan online or through a designated health insurance agent
• Participants submit claims and are reimbursed for eligible medical expenses
4. Participants Submit Claims
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HRA ADMIN SOFTWARE AND HOW IT CAN MAKE YOUR LIFE EASIER
A good HRA Administration software program
can be worth its weight in gold. The program
should allow you to manage your HRA in just
minutes each month, while ensuring compliance
with regulations such as HIPAA and ACA.
HRA Software Features to Look For:
Online plan setup with the option for assistance
Employee communication tools and sample letters
Ability to obtain electronic signatures
Ability to set up different employee classes
No pre-funding required
Provide an array of plan cost controls, which may include:
Exclusion of certain IRS-qualified medical expenses
Require deductibles, co-pays, and/or co-insurance to access HRA
reimbursements
Ability to apply a percentage of out-of-pocket expenses employees must pay
themselves before expenses are eligible for HRA reimbursement
Choose whether or not to reimburse insurance premiums
Pay down reimbursements over time when claims exceed fund balance
Change carriers without changing the HRA administrator
Allow employees to elect a limited-purpose HRA plan design that maintains their
eligibility to open a Health Savings Account if they have qualifying insurance
ERISA-Compliant Employee Assistance with Personal Policies
HSA eligibility
Reimbursement can be made via check, payroll addition, or direct deposit
HEALTH REIMBURSEMENT ARRANGEMENTS 101 16
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CONCLUSION
Health Reimbursement Arrangements allow employers to offer employee health
benefits while controlling health plan costs. The flexibility, control, and employer-
employee shared responsibility make HRAs an attractive alternative to traditional
group insurance plans.
Group health insurance is broken. HRAs provide a solution for employers and
employees. With continually escalating healthcare costs, employers owe it to
themselves to investigate HRAs for their businesses.
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APPENDIX: HEALTH CARE REFORM & HRAs
Health Care Reform & HRAs
The following Affordable Care Act (ACA) provisions apply to HRAs in certain cases:
Dependent coverage for adult children up to age 26
Coverage of preventative care without cost-sharing
Over-the-counter medicines and drugs require a prescription
Form 720: Fees to fund research on patient-centered outcomes
Summary of Benefits & Coverage (SBC) and 60-day material modifications
Form W-2 reporting of employer-sponsored health coverage
Internal and external claims and appeals processes for health claims
Annual and lifetime limit rules
To be compliant with the ACA, some HRAs require minor plan changes.
Unsure How Health Care Reform Impacts You?
Contact Zane Benefits. We’re pros on health care reform, and happy to help.
HEALTH REIMBURSEMENT ARRANGEMENTS 101 18
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ADDITIONAL HEALTH BENEFITS RESOURCES
For our full library of defined contribution and employee health benefits resources, visit:
www.zanebenefits.com/resources
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REFERENCES CDG & Associates. (2002). “Legal Experts Explain Impact of HRAs.” Collaboration. Retrieved February 21, 2008, from http://www.cdg-inc.com/news/HRA.htm
Durgan, A., Burbank, J. (2007). “Final Regulations on HIPAA Nondiscrimination Provisions and Wellness Programs.” Retrieved February 21, 2008, from http://www.truckerhuss.com/articles/view_article.cgi?class=articles&article=_health_and_welfare_benefits/20070101_Final_HIPAA_Regulations_Nondiscrimination_Wellness.txt
Health Equity. (2008). “Learn About HSAs.” Retrieved February 19, 2008, from http://www.healthequity.com/abouthealthcareaccounts/learnabouthsa/faq.aspx/
Infinisource. (2007). “Comparison of Health FSAs/HRAs/HSAs.” Retrieved February 22, 2008, from http://www.infinisource.net/Infinisource/docs/COMPARISON_OF_HEALTH_ FSA_HRA_HSA.pdf
Saleem, H. (2003) Health Spending Accounts. Retrieved February 11, 2008, from http://www.bls.gov/opub/cwc/cm20031022ar01p1.htm
The Henry J. Kaiser Family Foundation and Health Research and Educational Trust.
(2012). Employer Health Benefits, 2012 Annual Survey. Retrieved May 4, 2013, from http://kff.org/private-insurance/report/employer-health-benefits-2012-annual-survey/
The United States Department of the Treasury. (2007). “Health Savings Accounts (HSAs).” Retrieved February 19, 2008, from http://www.ustreas.gov/offices/public-affairs/hsa/
U.S. Office of Personnel Management. (2008). “High Deductible Health Plans (HDHP) with Health Savings Accounts (HSA).” Retrieved February 19, 2008, from http://www.opm.gov/hsa/chart.asp
HEALTH REIMBURSEMENT ARRANGEMENTS 101 20
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The #1 Online Small Business Health Benefits Solution
Successfully transition to a health benefits solution that creates happier employees, reduces costs, and frees up time for meaningful work. Request a Demo.
Zane Benefits' Partner Program is an opportunity for insurance professionals to provide clients with custom Zane Benefits solutions. Request a Partner Evaluation.
DISCLAIMER
The information provided herein by Zane Benefits is general in nature and should not be relied on for commercial decisions without conducting independent review and analysis and discussing alternatives with legal, accounting, and insurance advisors. Furthermore, health insurance regulations differ in each state; information provided does not apply to any specific U.S. state except where noted. See a licensed agent for detailed information on your state. www.zanebenefits.com.
Happier Employees
With Zane’s solution, employees choose the health plan that
best fits their families' needs. Learn more.
Controllable Costs
Employers fix their costs by utilizing a
defined contribution approach.
Learn more.
More Time for Meaningful Work
Once implemented, Zane’s solution takes less than 5 minutes
per month to administer online.
Learn more.
Easy Transition
Zane Benefits’ implementation team will ensure a smooth and fast transition for
you and your employees. Learn more.
