How to Integrate an HRA With Your High Deductible Health Plan
Could an HRA tied to a High Deductible Plan cut costs for your business?
According to the Bureau of Labor and Statistics, employee benefits make up nearly 32 percent of employer costs per employee. Those benefits, naturally, include health care costs. As a result, options like high deductible health plans are becoming increasingly popular with employers.
A bonus is the Health Reimbursement Account (HRA). When combined, employers can offset skyrocketing health insurance costs while maintaining a happy, healthy workforce.
But how does an HRA work? What are the benefits of offering an HRA with your high deductible plan? Should you really reduce your premiums to lower costs? How do employees feel about making the switch from full coverage to having to pay out of pockets?
Let’s take a look at those questions by turning our attention to how an HRA works with your high deductible Plan.
How an HRA Works
A Health Reimbursement Arrangement (HRA) is a government-approved way for employers to fund a tax-advantaged health plan that reimburses employees for any out-of-pocket expenses, aside from health plan premiums.
When employers opt for health insurance plans that come with high deductibles, they often choose an HRA to offset costs for employees. It works as a simple account system that allows employers to contribute to employee’s insurance accounts should they be eligible for added expenses.
HRA plans are highly sought-after by employers because it gives employee’s greater flexibility in choosing providers and healthcare services that are right for their needs. Many of these aren’t covered by their insurance, but the HRA contributions give them a cushion to make those decisions if they so desire.
However, HRA funds aren’t disbursed unless and until the payments have already been made. Employees still pay out of pocket for the medical expenses they want, but they receive an agreed-upon reimbursement based on their plan. The medical expense must be covered under the HRA as well.
Best of all, HRA’s are 100% deductible for employers and always tax-free for the employee. Employers also have total control over what expenses are eligible for HRA funds. Thanks to their flexibility, HRAs can offer added benefits to both the employee and the employer. Additionally, they are one of the more straightforward health plan options and offer clear-cut direction for both employees and employers.
Finally, employees tend to take a strategic and careful approach to their healthcare with an HRA and high deductible plan. As more conscious consumers, they reduce health care costs for employers who would traditionally pay higher premiums for healthcare coverage their employees weren’t using.
Expectations for Employers
Setting up a high deductible health plan with your HRA is relatively simple. As the employer, you’ll need to set aside a pre-tax dollar amount for employees to cover health care costs each year. Developing this number can be tricky, but we can help with that process.
The two most important requirements you must meet are, 1) fully fund your plan and never reduce your employee’s salary based on the plan, and 2) you can only offer benefits through this plan for substantiated medical expenses.
Depending on the plan design, your HRA can help lower costs significantly.
Why Pair it With a High Deductible Health Plan?
High Deductible Plans are a no-brainer for most employers. Saving money on health care costs while still meeting Affordable Healthcare Act compliance isn’t a tough decision to make for most. However, a lack of coverage for employees could cause key talent to look elsewhere for employment.
To bridge the gap between what could be a very expensive health care plan for employers and greater coverage for employees, many businesses integrate an HRA.
Your HRA will serve as a savings account for your employees. While most of them are likely to never even dip into the fund, some will. If your basic insurance plan doesn’t cover your employee’s healthcare costs in a given year, the HRA will make up the difference.
There are multiple plan options for HRAs including:
- Co-pay, Co-Insurance, and Deductibles. (Eligible medical expenses, co-payments, and co-insurance payments are reimbursable based on the agreement. Employees must provide an Explanation of Benefits (EOB) statement to be reimbursed for theirs or their family’s medical costs.)
- All Uninsured Medical Expenses. This plan covers all of your employee’s out-of-pocket expenses. This includes all of the aforementioned plan’s coverage in addition to dental and vision care costs.
- Select expenses. This is a more limited version of the HRA where employers offset costs associated with dental care or some other very specific service via a savings account.
If you want to keep your cost per employee for healthcare at a manageable level, particularly if you are a small business, one of the best options is an HRA integrated with a high-deductible health plan.
Benefits of High Deductible Health Plans
For employers, High Deductible Health plans are the perfect solution when paired with an HRA. They offer flexibility that few other compliant plans provide. As an employer, you have total control over the plan’s structure and reap a host of benefits along the way. Some of these benefits include the following.
Because you’re pairing your HRA with a high deductible plan, your premium per employee is far lower. Many employees save hundreds per employee by switching to this plan design.
Plenty of Network Options
Employees don’t have to worry about added fees when they shop out of network for health care coverage. This is an added benefit that’s similar to an HMO plan.
Ideal for Healthy Groups
The healthier your group is, the better this option is. Employees who aren’t on expensive medications can benefit from the plan option without worrying about higher monthly bills.
Flexibility Allows You to Offer More Benefits
Instead of paying high premiums per employee, you can advertise multiple benefit options without the high costs. High Deductible Plans provide employees and employers with the flexibility they need to stay covered.
Negotiated Out-of-Pocket Expenses
When paying out of pocket employees can negotiate with their provider and get reduced costs for their healthcare needs. Insurance often is set to pay at a default rate, but paying cash for health care can dramatically reduce the costs to employees and employers via the HRA plan.
The greatest benefit of HRA’s and High Deductible Health Plans to employers is the flexibility and control they offer over costs.
How to Set it Up
Setting up your HRA to offset costs of a High Deductible Health Plan is a straightforward process. However, there are several factors to keep in mind before you make your switch.