Many employers find that increasing deductibles can reduce premiums, but that increases employees' out-of-pocket costs. Taking all or part of the employer's savings in premiums and using this money to fund HRAs can offset the higher deductibles. The savings can be significant and many employers have found that future insurance rate increases are lower than in past years.

This is largely due to the effect of "consumerism". The employee tends to view the money in the as his or hers, and therefore generally makes wiser decisions when choosing to use the medical benefits.

You can also use HRAs to reduce employee turnover. Any unused money in these plans can roll forward from year to year, if you choose this option, so funds can accumulate. They can even be used after retirement, if desired. This feature encourages employees to remained employed to assure continued access to these funds.

There are many other ways the HRA plans can enhance your benefit program. The best design for your organization is determined in the implementation planning session. These special Flexible Spending Accounts are designed to work with Health Savings Account (HSA) plans that many employers now offer in conjunction with a High-Deductible Health Plan (HDHP). Limited-Purpose Flexible Spending Accounts (LPFSAs) only cover dental, vision and hearing expenses. The rules governing the Heallth Savings Accounts do not allow the LPFSAs to cover medical expenses.

If you offer employees a choice of medical plans, with and without HSAs, you should consider offering both the LPFSA and the standard FSAs. The employees participating in the HSA plan can choose the LPFSA and your other employees can choose the standard FSAs that also cover medical expenses. These is no additional cost to offer both styles of FSAs.

In either case, you may also offer Dependent Care FSAs for employees with work-related day care expenses.

When should you provide HRAs?

Health Reimbursement Accounts are appropriate if: