Health Reimbursement Plans

Health Reimbursement Arrangements (HRAs)

Basics

• Health Reimbursement Arrangements employer-funded accounts that employees can draw upon to pay qualified medical expenses, are usually offered as part of consumer-directed health plans (CDHPs), a fast-growing marketplace solution to rising health care costs.
• HRA-Health Reimbursement Account based health plans provide employers with an important new benefits option, one that helps raise consumer awareness of the real costs of health care while empowering consumers with greater decision-making control over their health care spending. HRA health plans usually include a high deductible, and research shows that total health spending is reduced when consumers bear more responsibility for their health care expenses.
• Members of an HRA Health Reimbursement Account plan who do not use all of their fund or account in one year can roll over unused funds for use at a later time for medical expenses, COBRA benefits, long-term care or Medicare premiums.
• HRA-Health Reimbursement Account based plans facilitate access to quality care because preventive care, such as routine physicals and child immunizations, typically is covered 100 percent and is not charged against the employee's fund.

Background
With health care premiums continuing to rise at double-digit rates, many employers have been forced to reduce benefits, shift more cost to employees or drop coverage entirely. Less than two-thirds of all employers now offer health insurance to their employees. The marketplace is ready for increased consumer accountability, and the popularity of HRA Health Reimbursement Account plans is growing fast.

How HRAs Work
As most commonly constructed, HRAs Health Reimbursement Accounts are linked with high-deductible health plans that include preventive care not charged against the deductible and access to information tools that help consumers make informed decisions. Members can use the fund to pay qualified medical expenses or roll over unused funds at year end for future use. Most HRA Health Reimbursement Account members who use up the fund then have to meet a deductible for medical expenses before major medical coverage kicks in. With the opportunity to determine how and when their health care dollars are used, HRA Health Reimbursement Account members have an incentive to become informed and value seeking health care consumers.

Q. What is an HRA?
A. An HRA Health Reimbursement Account is a federally authorized funding method that gives employers the option to reimburse employees for a portion of their health care expenses.

Q. Can the employee contribute to an HRA either directly or through salary reduction?
A. No, an HRA Health Reimbursement Account is solely employer funded.

Q. Must an HRA be combined with a high deductible plan?
A. No, HRAs Health Reimbursement Accounts can be independent of a major medical plan. If combined with a major medical plan, an employer is not restricted to a particular type of plan that accompanies the HRA. However, an employer's savings may be maximized with a high deductible plan.

Q. Must an employee participate in health insurance coverage to receive an HRA?
A. There is no legal requirement, but an employer can require an employee to participate in health insurance in order to receive the HRA Health Reimbursement Account.

Q. Can an employer pay out any cash balance from an HRA to an employee who is terminating?
A. No. However, an employer can set up the HRA Health Reimbursement Account so that when employees retire, the remaining balance can be used to pay for retirees' medical expenses.

Q. Can an employer continue to reimburse a former employee for medical expenses after termination?
A. Yes, if the employer sets up the HRA Health Reimbursement Account to do so.