HEALTH REIMBURSEMENT ARRANGEMENTS 101

Transcription

1 HEALTH REIMBURSEMENT ARRANGEMENTS 101 Customizing and Controlling an Employee Health Benefits Plan that Makes Employees Happy. Share This!

2 2 TABLE OF CONTENTS PREFACE GROWING HEALTHCARE COSTS WHAT IS AN HRA.5 THE ADVANTAGES..6 COMPARE HRA, HSA AND FSA REAL LIFE SUCCESSES.11 HOW TO IMPLEMENT AN HRA...13 ABOUT HRA ADMIN SOFTWARE 14 ABOUT ZANE HRA.15

3 3 PREFACE 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 PROBLEM. WHICH BRINGS US TO You want to provide quality health benefits for your valued employees. But for a small business, a traditional group plan may not be cost effective. THAT S WHERE HRAS COME IN. 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. Since employees pay up-front for their medical expenses, HRAs let employees see where they are spending their health dollars so that they can make better-informed healthcare decisions. This results in cost savings for the employee and employer.

4 4 RISING HEALTHCARE COSTS While increases in health insurance costs have slowed over the past several years, they continue to rise faster than wages and inflation. Average Employer Cost One Year of Health Insurance * Single Employee: $4,479 Family: $12,106 * Kaiser Family Foundation, 2007 SMALL BUSINESSES HIT THE HARDEST A full 99 percent of employers with 200 or more employees provide group health insurance plans for their employees. However, only 59 percent of employers with three to 199 employees provide employee health plans, down from 68 percent in (The Kaiser Family Foundation, 2007) 3 to 199 Employees 200+ Employees None 1% None 41% Health Insurance 59% Health Insurance 99%

5 5 WHAT IS AN HRA? An HRA is a Health Reimbursement Arrangement. An HRA is an employer-funded plan that may be used to reimburse employees for medical expenses. An HRA is not health insurance, but can be used to supplement health insurance benefits and pay for a range of medical expenses not covered by 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 reimbursement 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 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, contact Zane Benefits.

6 6 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 betterinformed decisions and decreased healthcare 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.

7 7 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. Many employers integrate HRAs with health insurance for maximum advantage. When combined with an employer health insurance plan, HRAs offer even more benefits: Cost Savings Employers with group coverage may opt for a high-deductible plan and then reimburse employees for under-deductible payments. This can result in significant premium savings, a portion of which may be used to fund HRAs. Small employers who cannot afford to offer group health insurance may reimburse employees for deductibles and premiums on individual health insurance policies (with some restrictions), which may cost far less than group insurance. Expanded Coverage Employers may choose to expand employee benefits by reimbursing eligible medical expenses not covered by group insurance. This can include wellness benefits such as weight-loss programs that reduce overall employer healthcare costs over time.

8 8 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.

9 9 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. THOSE 3-LETTER WORDS: FEATURES COMPARED LEGAL AUTHORITY ELIGIBILITY QUALIFIED MEDICAL EXPENSES NONQUALIFIED MEDICAL EXPENSES HRA HSA FSA IRS Guidance and IRS Code Section 105 All employees and former employees at employer s discretion, not selfemployed Unreimbursed medical care expenses as defined by Internal Revenue Code section 213 including individual insurance premiums Expenses not under Internal Revenue Code Section 213 Medicare Prescription Drug, Improvement, & Modernization Act of 2003 and supplemental guidance from the IRS Anyone covered by an HSA-eligible highdeductible health plan Unreimbursed medical care expenses as defined by Internal Revenue Code section 213 and insurance premiums for unemployed individuals Expenses not under Internal Revenue Code Section 213 Internal Revenue Code Section 125 All employees except self-employed Unreimbursed medical care expenses as defined by Internal Revenue Code section 213 and dependent care 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

10 10 PURCHASE OF PLAN REQUIRED? CONTRIBUTOR ANNUAL CONTRIBUTION LIMITS No Employer HRA HSA FSA No statutory limit; limits may be set by employer Yes; purchase of HSAeligible high deductible plan required Employer, employee or third party $3,100/single*; $6,250/family* *2012 No Employee Starting in 2013, contributions will be limited to $2,500 per employee, with annual inflation increases. FUNDS CARRIED OVER TO NEXT YEAR? PORTABILITY Yes, at employer s discretion At employer discretion Yes Continued access to unused account balance if employee is no longer working for the employer. Withdrawals for nonmedical 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. No Account cannot be maintained if the employee is no longer working for the employer WHAT DOES YOUR BENEFITS PICTURE LOOK LIKE? GET A FREE BENEFITS ASSESSMENT! FREE ASSESSMENT

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12 12 REAL LIFE HRA SUCCESSES THREE DIFFERENT BUSINESSES REALIZE SAVINGS & OTHER BENEFITS 38 EMPLOYEES, EXPANDED BENEFITS A manufacturing firm in Pennsylvania had 51 employees. Before switching to an HRA, 38 employees participated in the group plan and 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. 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

13 13 use their spouse s plans) allowed the company to offer all 10 employees complete health benefits for less than $100 per month per person. 42 EMPLOYEES, 67% SAVINGS Before learning about HRAs, a health management company in New Jersey with 42 employees raised its group health plan deductibles and gave every employee a Health Savings Account (HSA), which cost $100,800 per year. Much of the HSA money was spent on employees who had few medical expenses. After learning about HRAs, the company cancelled its HSA and set up an HRA. Then it gave every employee a $200 per month HRA allowance, which it supplemented with accident medical insurance. The company now pays only to reimburse expenses actually incurred that are not covered by the group or accident policy. The company saves $67,000 on its health plan, or 67 percent per year. HRAs are especially attractive for employers who want to provide employee health benefits but have been priced out of traditional group plans.

14 14 HOW TO IMPLEMENT AN HRA PLAN IN FOUR EASY STEPS 1. Choose an HRA Administrator Your administrator should get to know your business They will help you design, implement and manage the plan 2. Design the Plan Based on your specific business needs Create all required plan documents 3. Distribute Documents Inform employees via official documents Obtain Summary Plan Document (SPD) signatures 4. Participants Submit Claims Employees choose health plan online or through a designated Licensed Benefits Consultant Participants submit claims and are reimbursed for eligible medical expenses WHAT DOES YOUR BENEFITS PICTURE LOOK LIKE? GET A FREE BENEFITS ASSESSMENT! FREE ASSESSMENT

15 15 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. Share This! 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 Pay claims as approved rather than requiring pre-funding, so no expense is incurred until claims are reimbursed Provide an array of plan cost controls, which may include: o o o Exclusion of certain IRS-qualified medical expenses that the employer will not cover 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

16 16 ABOUT ZANE HRA ZaneHRA automatically makes employers compliant with all applicable ERISA, HIPAA and IRS regulations. ZaneHRA is SAS70 compliant and is distributed by leading health insurance agencies, carriers, payroll companies, and financial institutions. EMPLOYERS Find out how to offer employees top quality health benefits for much less than the cost of traditional insurance. Get a no obligation demonstration and learn how much you can benefit from ZaneHRA! AFFILIATES Help your clients offer Defined Contribution Health Plans that reduce costs while improving benefits and retention. Sign up for a free personal sales website to start earning commissions today! FREE DEMO! START EARNING COMMISSIONS FEATURED IN:

17 17 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. With continually escalating healthcare costs, employers owe it to themselves to investigate HRAs for their businesses. REFERENCES CDG & Associates. (2002). Legal Experts Explain Impact of HRAs. Collaboration. Retrieved February 21, 2008, from Durgan, A., Burbank, J. (2007). Final Regulations on HIPAA Nondiscrimination Provisions and Wellness Programs. Retrieved February 21, 2008, from e_benefits/ _final_hipaa_regulations_nondiscrimination_wellness.txt Health Equity. (2008). Learn About HSAs. Retrieved February 19, 2008, from Infinisource. (2007). Comparison of Health FSAs/HRAs/HSAs. Retrieved February 22, 2008, from FSA_HRA_HSA.pdf Saleem, H. (2003) Health Spending Accounts. Retrieved February 11, 2008, from The Henry J. Kaiser Family Foundation and Health Research and Educational Trust. (2007). Employer Health Benefits, 2007 Annual Survey. Retrieved February 18, 2008, from The United States Department of the Treasury. (2007). Health Savings Accounts (HSAs). Retrieved February 19, 2008, from U.S. Office of Personnel Management. (2008). High Deductible Health Plans (HDHP) with Health Savings Accounts (HSA). Retrieved February 19, 2008, from Share This!