What is an HRA?
- Defined Contribution Health Plan
- A Fixed Cost Health Plan
- Employer Funded (No employee dollars allowed)
- Increases employee cost control and responsibility for health care
What is eligible as an HRA expense?
- All Code 213 expenses are eligible
- Health expenses and health premiums
- Long Term Care Insurance premiums
- Excludes: Disability and life insurance premiums, long term care services
Who can participate?
- Employees, their spouses and dependents
- Retirees, their spouses and dependents
Who cannot participate?
S-Corporation Owners, Partners, Sole Proprietors, LLC and LLP Owners
Can domestic partners participate?
Plans can be available to domestic partner:
- Impute premium value
- Employee pays premium for domestic partner with after-tax dollars
- HRA pay-out is then tax free from HRA to domestic partner
Do Flex Rules apply to HRAs?
The following Flex Benefit Plan rules do not apply to HRAs:
- Use It or Lose It
- 12-month election and utilization requirement
- Uniform coverage rules
- No premiums allowed in a Health FSA - they are allowed in HRAs
Can HRA dollars be cashed out?
- Never can be cashed out
- Not for termination, death, or with severance pay
Can a correlation exist between Flex Plans and HRAs?
- No Salary Reduction dollars ever allowed in a HRA
- Safe Harbor rule: premiums in a HRA cannot exceed COBRA premium values
- No direct or indirect correlation between salary reduction and HRA dollars
Who pays first HRAs or Flex Plans?
- The employer decides, based on plan design
- Set up Plan Documents to designate order and covered items (Flex & HRA)
- Employer has complete control to specify
- If the Employer does not specify order of payment, Flex pays second
Do ERISA rules apply?
- IRS ignored Title I because -
"if they had to work with the DOL the program
would never roll out" - Expect future Summary Plan Description and Reporting Requirements
Are there reporting requirements?
Un-funded plans with less than 100 participants - No Funded plans or plans with 100 or more participants are subject to ERISA
5500 Form may be required by DOL
Are there non-discrimination rules to follow?
- Yes, same as for all other 105 Plans
- Equal contributions for all eligible employees satisfies this requirement
- Equal utilization NOT required
Does COBRA have to be offered?
- Yes, always
- Can be bundled with group health COBRA election
- How to factor premiums is a concern
- Give option to "spend down" or to purchase under COBRA
Do unused dollars have to be carried forward?
- No, The employer determines how much (if any) and aggregate amounts
- Participation can stop at termination with or without spend-down period
- Must always offer COBRA
Does an employer have to fund the accounts?
- No pre-funding is required
- Can invest dollars
- Can use HRA dollars toward administration
What design options are there?
- Bundled Accounts
Must be on health insurance to be eligible - Un-Bundled Accounts
Not required to be on company health insurance - Eligibility
Employee only, Employee & Spouse or Family - Payments
As earned (accrued) or available anytime - Spend Down
Usually 90 days, could be 30 days or even no limit
Most Popular HRA Model
Deductible Model
-
- High Deductible Insurance Plan
- HRA Account - Pays 50% of deductible
- HRA pays deductible after 1st $500 Paid
- HRA pays 100% of deductible
- Employee pays regular office visit co-payments, prescriptions, dental, vision etc.
- Employee uses Flex Plan to pay out-of-pocket health expenses with pre-tax dollars
- Employee and Insurance Share other eligible medical expenses (co-insurance 80% - 20% etc.)
Advantage:
-
- Easy to design and administer
- Shared cost of increased out-of-pocket deductible expense by employer and employee
Disadvantage:
-
- Hard to estimate utilization
- Budget concerns (national statistics say 22% use deductible)
Results:
-
- Some short-term cost-controls
- Little of no effect on consumer behavior
HRA Self-Funded & Insured Model
HRA and Voluntary Insurance
-
- High Deductible Insurance Plan
- HRA Account - Certain dollar amount available - allowed to be used for any expense and/or to purchase supplemental health premiums
- Employee pays regular office visit co-payments, prescriptions, dental, vision etc.
- Employee uses Flex Plan to pay out-of-pocket health expenses with pre-tax dollars
- Employee and Insurance Share other eligible medical expenses (co-insurance 80% - 20% etc.)
- Supplemental Health pays hospital deductible and/or other benefits (accident, cancer etc.). Can include long term care insurance premiums
Advantage:
-
- More choice by individual employees
- Shared cost of increased out-of-pocket expenses (deducible and other)
- Easier to budget - usually lower dollar amount per HRA account
Disadvantage:
-
- More employee utilization
- More administration
Results:
-
- Some cost-controls
- Little or no effect on overall consumer behavior
Most Innovative Model
Larger Employer Groups Only (100+)
Goal to Move toward Consumer Behavioral Change
-
- HRA $1,200 Single / $2,400 Family
- HRA Account pays all medical expenses (office visits, prescriptions, lab etc.)
- Discounts for in-network providers
- Expenses for all medical providers allowed
- GAP - $500 Single / $1,000 Family
- Employee pays GAP / uses Flex Plan to pay out-of-pocket health expenses with pre-tax dollars (vision & dental expenses)
- Co-insurance 80% - 20% etc. - then
- 100% insurance paid, thereafter
Features:
-
- Annual Preventive Wellness Check Up paid at 100% (max. $200 single & $400 family)
- Wellness dollars DO NOT carry forward to next year
- Wellness Coach and Chronic Illness Manager provided at no charge
- Internet Access to network doctors, hospitals (usual fees and ratings provided)
- Internet Access to prescription costs and options recommended for various conditions
Advantages:
-
- Drives behavioral change
- Encourages early diagnosis, chronic condition control, prescription choice and cost awareness and changes overall levels of utilization
Results:
-
- Total shift in Health Care with focus on Employee Education & Choice
- Health trend changes in 3 to 5 years
- Whoever holds the money is in control... now the consumer is in control.
Facts:
- National health care just surpassed $1,400,000,000,000 (15% of GDP)
- Will double by 2008 (unavoidable)
- Costs will increase on average 16% in 2003
- Past three years - increase combined has been 49%
Detriments to health:
-
- 10% - Insufficient access to care
- 20% - Genetics
- 20% - Environment
- 50% - Behavior (poor diet and minimal exercise top the list)
- 60% of large employers are moving toward consumer-driven health care
- National Carriers are developing similar models
Health Care Utilization:
No or low utilization (75% of consumers / using 10% of health care)
-
- Preventive Care
- Acute illness or injury
Medium utilization (20% of consumers / using 15% - 20% of health care)
-
- Multiple acute visits
- Chronic illness
High utilization (5% / using 50% - 70% of health care)
-
- 15 priority diseases / conditions - poorly controlled
- Unpredictable catastrophic condition
Example of Consumer / Provider Utilization Problem
- 1989-99 there were 6.7 million visits by adults to the doctor for sore throat
- Antibiotics were prescribed for 73% of all visits
- Antibiotics indicated only 15-17% of the time ( for strep throat)
- Inappropriate use of drugs - Most costly were used 70% of the time Penicillin, Erythromycin recommended at a cost of $2 per course of treatment Azithromycin, Flouroquinolones prescribed instead at a cost $40 - $80 per course of treatment
- Antibiotic resistance is a growing major health concern
- Cost of this care:
Employee:$10 - $25 dollars
Employer:$100 - $200 dollars
Case Study - Fortune 500 Employer
- Plan with of 60,000; 1,500 tried new consumer-driven model
- Plan usage dropped 11% 1st year
- Prescription drug utilization declined 6%
- Employees maintained similar levels of preventive / wellness care
- Highest users of health care - showed greatest reduction in use (while still getting the necessary care)