Products - Health Reimbursement Arrangements

The Key to Combating Rising Health Care Costs!

An employer using our services in establishing a Health Reimbursement Arrangement generally will realize an increase in net revenue through decreased premiums. Additionally, the employer gains a powerful resource in handling those rising benefit costs. Not only will the employer benefit, but participating employees benefit as well. They receive a valuable tax-free benefit that, when utilized, generally results in increased compensation.

What is a Health Reimbursement Arrangement?

We understand that the rising cost of health care is a concern for most employers.

Employees have been asking for more choices and employers need a break on benefit expenses. In searching for the means by which they might balance financial constraints with employee health care needs, employers of all sizes are considering a "new and improved" benefit concept.

A defined contribution health plan, the Health Reimbursement Arrangement (HRA) provides for payment of employee out-of-pocket medical expenses from employer-funded accounts. Unlike a health care flexible spending account, employers establish a specific annual account maximum that they may fund on a periodic basis.

With the implementation of an HRA, employers exert greater control over benefit costs and delivery while employees exert greater control over health care choices and expenses. Essentially, employers and their employees become partners in the benefit program.

Who may sponsor an HRA?

Regular corporations, partnerships, S corporations, limited liability companies, sole proprietors, professional corporations and not-for-profit s can all save money by establishing an HRA. While regulations prohibit a sole proprietor, partner, member of an LLC or an individual owning more than 2% of an S corporation from participating, they may still sponsor a plan and benefit from applicable tax deductions.

Why sponsor an HRA?

There are three (3) primary reasons an employer should establish an HRA.

• Flexibility - an HRA may be used to finance any health benefit under Section 213 of the Internal Revenue Code.

• Control - HRA funding remains with the employer or its service provider until a claim is made.

• Savings - the employer defines HRA benefits and establishes HRA account limits.

How does an HRA work?

An employer adopts a formal plan and distributes a summary plan description describing, among other things, the amount of money available to each employee during the coverage period. Employees may request reimbursement for medical expenses at the time services are rendered, save them for future reimbursement or, possibly, use them for health benefits in retirement.

Services for eligible expenses must be provided while employees are covered by the HRA, but the plan document may specify that requests for reimbursement need not occur until months or even years later.

As eligible expenses are submitted either through paper claims, online claims or the debit card, the employee’s account is reduced and paid to them on a non-taxable basis. At the end of the coverage period, a new period begins with additional funding made available.

How is an HRA designed?

The simplest HRA design consists of the following key components:

• The Reimbursement Account. A specific allocation of employer funds pledged to the participant, these funds may be used to reimburse the participant for any expenses incurred for services covered under the plan.

• The Individual Responsibility Gap. Once the Reimbursement Account has been exhausted, the participant is responsible for all expenses incurred prior to the point when the insured portion of the plan commences.

• Health Insurance. Once the Reimbursement Account and Individual Responsibility Gap have been exhausted, a traditional health insurance plan takes effect, covering all remaining benefits.

What plan design options are available?

Employers experience the greatest benefit through switching to a high deductible insurance product. In doing so, they reduce insurance premiums and may use a portion of the amount saved on reduced premiums to fund an HRA account for each employee.

• Bridge Plan. The bridge HRA pays only for deductible items covered by insurance, providing a "bridge" between out-of-pocket expenses and insurance coverage.

• Comprehensive Plan. The comprehensive plan pays all expenses not covered by medical insurance including, but not limited to, dental and vision fees, co-pays and deductibles. This plan either could be coupled with a higher deductible or limited-coverage insurance product or provided as an additional employee benefit.

• Limited Plan. A limited HRA covers only a group of expenses, such as dental or vision. It can also be restricted to a single medical expense, such as prescriptions. What better way does an employer have these days to explore the advantages of self-insuring? No premium expense for the employees or employer and the employee acquires a great new benefit.

• Insurance Only Plan. The insurance only HRA allows employees to pay for health, disability or long-term care insurance. An HRA may, but need not, provide an option to carry unused funds forward from year to year. Doing so will allow employees to the best way to spend their health care dollars.

What benefits will I recognize?

• Deductible Contributions. Contributions to the plan are deductible by the employee when used to reimburse employees.

• Savings. Switching to lower premium, high deductible health insurance may generate a savings in overall health benefits made available to employees.

• Better Consumers. Employees generally search for better, more efficient care when offered the opportunity to choose.

• Improved Morale. The amount spent on health care can be clearly identified by employees.

• Recruitment/Retention of Quality Employees. Employer viewed positively through providing a benefit package with the interests of the employees in mind.

• Increased Tax Savings. Increased savings can be realized through establishing a cafeteria plan.

• Expense Deductibility. The amount used by employees and the administrative expense of plan administration are tax deductible.

By using a higher deductible health plan, premiums decrease and you save money. While employee satisfaction may erode, causing turnover and higher recruiting/training costs, establishing an HRA will turn the tide in your favor. By making one-half to one-third of the deductible available to employees each year through an HRA, employees have more control over medical expenses and may experience less risk in paying deductibles.

HRA Savings Illustration (pdf 497 kb)

What benefits will my employees recognize?

• No Employee Contributions. You, as the employer, fund the entire benefit.

• Tax-Free Income. Employees receive reimbursement from the HRA on a tax-free basis.

• Participation. Employees exert more control, have more choice and experience greater flexibility in determining their health care expenditures.

• Expense Reduction. Potential costs are reduced through premiums reduction and HRA reimbursement.

How easy is starting and maintaining a Health Reimbursement Arrangement?

Simply contact us through your health insurance representative, or directly with a Health Reimbursement Arrangement application, and we take care of the rest.

Health Reimbursement Arrangement Application (pdf 31kb)

• Plan Consulting. Once we have been contacted, we will discuss the design options available to you.

• Plan Set-Up. Our product includes signature ready plan documents, including all forms and instructions necessary for plan implementation. For existing plans, our services include plan review and amendment, if necessary.

• Employee Enrollment Assistance. Our product includes employee enrollment forms. If requested, we will attend enrollment meetings. Confirmation of annual amounts, claims forms and filing instructions are provided for all participants.

• Employee Account Management. Generally, periodically you will send appropriate funding to us. We then credit each employee account with the proper amount. Services include account balance tracking, claims adjudication and claims payment by check or direct deposit on a weekly basis.

• Participant Assistance. Employees have 24-hour access to their accounts via the internet. Employee statements are included on claim reimbursements by check and on-demand.

• Annual Plan Compliance. Services include reconciliation and reporting of employee account balances, plus compliance with discrimination testing requirements and 24-hour access to plan data. Assistance with preparation of IRS Form 5500 (if filing is required) will be provided.