Health Reimbursement Accounts

A Health Reimbursement Account (HRA) is a type of self-funded account regulated by Section 105 of the Internal Revenue Code. It enables employers to purchase group health insurance plans with high deductibles, then self insure a portion of the plan to keep out-of-pocket expenses manageable for covered employees.

HRAs have become increasingly popular due to the rising cost of health care premiums. Because HRAs are flexible, employers can purchase high deductible health plans with significant premium savings. They then self-fund a portion of the high deductible (or benefits) with an HRA so employees don't feel the burden of the high deductible plan.

For example: An employer with 50 employees in a PPO group health insurance plan, with a $500 deductible that costs $220,000 may see a renewal premium increase of 40% with an additional cost of $89,000 for a total of $309,000. It is difficult to control profitability for the company when insurance premiums increase costs year to year.

By selecting a higher deductible health plan, and purchasing an HRA, the employer can create savings in their health programs by implementing a plan employees enjoy using, and also help the company control costs effectively.

The most common HRA funds a portion of the plan deductible. Many employers add funding for co-pays, prescription drugs, and other expenses to the HRA. However, the employer must identify qualified claims at the plan inception. HRAs may "rollover" all or some of the unused account balances.

Employers and Employees Win

• Flexibility in controlling escalating benefit costs
• Flexibility in benefit choices
• Employee retention and attraction
• FICA Tax savings of 7.65% on every dollar that is utilized through the plan

Plan Designs

There are countless options in designing an HRA. With CPHR plans, we generally administer three types of HRAs.

1. Deductible Only - Employee First Dollar. Example: if single deductible is $1,000, employee will pay the first $500; employer will pay the next $500 to meet the $1,000 deductible.

2. Deductible Only - Employer First Dollar. Example: if family deductible is $2,500, employer will pay the first $1,500; employee will pay the next $1,000 to meet the $2,500 deductible.

3. All Un-reimbursed Medical Expenses (213d). Example: employer will reimburse employees for all eligible 213d expenses with employer funds. For a complete list of 213d expenses, please visit www.irs.gov/pub/irs-pdf/p502.pdf (Publication 502) Please note that many employers utilize HRAs as an alternative to dental, vision or other health care plans. We also offer variations in plan design. Contact us for more details!