What is a Health Reimbursement Arrangement?
As employers increase the medical deductible and coinsurance limits on their group medical plans, they are electing to self-fund some or all of these expenses for employees and covered dependents in the form of HRA. As long as the offer is the same for “similarly situated” employees (same amount offered to everyone), it will pass non-discrimination testing.
How does it benefit my company?
- By increasing the medical deductible and coinsurance limits on your group medical plan, you save money on lower insurance premiums.
- With lower insurance premiums, you can offer an HRA to reimburse employees. The premium saved should more than pay expected claims and administrative expenses with money left over. This is savings you did not send to the insurance company in wasted premium.
What else do I need to know about an HRA?
- With respect to employees utilizing the reimbursements, we find a PPO medical plan will typically see between 7% and 15% of the covered individuals submitting reimbursement requests in a calendar year.
- If you contribute less than 100% to the employee only insurance premium, the insurance premium savings will likely be too small to cover the cost of reimbursing claims and paying administrative costs. The more you contribute to premiums for employees and covered dependents the more attractive and greater the savings.
- By IRS rules, company owners often cannot participate in an HRA. Only C Corporation owners can participate. And, if you are a Sub-Chapter S Corporation, employees who are related to you cannot participate.
- You may match a PPO high deductible medical plan or a Health Savings Account (HSA) medical plan with an HRA. Special considerations must be addressed when using an HSA-qualified medical plan in conjunction with an HRA.
Why SBA for your HRA Plan Administration?
HRAs, while not a particularly complicated concept, have some tricky provisions and can be confusing for participants. Additionally, HRAs have been affected by the Affordable Care Act by limiting HRA plan designs and integrating them with group medical plans.
To keep your HRA in compliance, SBA will:
- Create enrollment materials, plan documents and Summary Benefits Coverage (SBC).
- Conduct required annual non-discrimination testing.
- Send monthly statements of account showing the calendar year claims to date.
- Assist HRA participants who are confused about where to find the deductible or coinsurance figures on their EOBs. Employees can call us and we will help them read their EOBs and complete the paperwork to start the reimbursement process. Often participants will ask, “Can I just send you everything and will you sort it out?” and the answer is yes, we will do everything to have a satisfied participant.
- Calculate the PCORI fees (another consequence of the ACA) that must be paid on HRA benefits.
- Present a signature-ready IRS Form 720 by July 1, for the once-a-year required payment. The fees are nominal but the paperwork requirement and reminder is our responsibility when we administer your HRA.
Better together: HRA and COBRA administration
Working with SBA for your HRA and COBRA administration provides additional advantages. Did you know that an HRA is a COBRA-eligible benefit? When SBA provides you with COBRA administration, we don’t have to ask you how much was reimbursed in order to calculate the HRA COBRA premium, that information is already in our system, saving you time and effort.
Just how is the HRA COBRA premium calculated? We use our experience from administering many other HRAs to estimate first year utilization vs. your actual HRA utilization to calculate future year COBRA premiums. An HRA should not be made available to terminated employees without charging a premium, they don’t get health insurance under COBRA without charging a premium!
How do you get started?
Talk to your benefits broker about the advantages of an HRA today.