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Why provide employees with an Health Reimbursement Account?
Health Reimbursement Accounts (HRAs), while somewhat new, are expected to produce real savings in employer health care costs.
Some recent experience has shown as much as a 10% annual reduction in premiums, rather than the normal annual increase
we have grown to expect.
The savings comes from two areas; reduced utilization, and lower costs when an employee does have an expense.
The primary reason is HRAs tend to change employees' behavior by giving them a stake in the wise
use of health care services.
How does this work? Essentially, you increase employees' out-of-pocket expenses in the medical plan, but
you give them some of the money they need to cover these expenses in an HRA. You then allow the employee to
accumulate unused HRA funds year after year, creating an incentive to save and/or use cost-effective
medical care when necessary.
The employer sees several advantages:
Medical insurance costs may drop in the first plan year due to the change in plan design (increasing
out-of-pocket expenses), creating the money to fund the HRAs.
Premiums in future years increase less than traditional plans due to lower utilization.
HRAs are attractive benefits that can help attract and retain healthy employees due to the accumulation of funds.
Of course, you would not want employees to avoid preventive care, so it is suggested that a wellness
component be included in the medical plan.
Employees with lower annual expenses would have an opportunity to accumulate HRA funds for unexpected
future expenses, or for high-cost services like orthodontia or Lasik surgery that are not typically covered
by employee benefit plans. Some employers even allow employees to "vest" after a certain number
of years, and once this occurs, the employee can use accumulated funds for medical expenses after
retirement.
Employees with high annual expenses would continue to have out-of-pocket maximums to protect them
from potentially catastrophic costs.
The employer does not need to fund the HRA in advance of the expense, but generally pay out
of the general assets when a claim is presented. Of course, it would be prudent to track the
liability on ones books.
The HRA is another unique tool available from the Arison BenefitsWorkshop, and it works well with the
Flexible Spending Account plans for employees anticipating higher than average medical expenses or
with significant dental or vision care costs.
Click here to order an HRA and/or FSA proposal.
All BenefitsWorkshop services are provided by JAG Enterprises, LLC.
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