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HRA Plans Gaining Popularity
GRAND RAPIDS — Even though there is some risk involved, more employers are adopting Health Reimbursement Arrangements, or HRAs, and they are “catching on like wildfire,” particularly in Michigan, according to a market development official for Priority Health.
“We have seen a surge in HRAs in the last few years,” said Amy Chambers, a Priority associate vice president, noting that they are outselling Health Savings Accounts almost four-to-one. Nationwide, however, HSAs are outselling the HRAs.
“Employers are looking for ways to cut their total benefits spend,” said Chambers. “They have to, and it’s one of the newer creative vehicles that helps save money.”
HRAs allow the employer to reimburse a participating employee for specified out-of-pocket medical expenses and can only be funded by employer dollars.
“If you have a $100 single deductible … the employer says, ‘These $100 deductibles are going to kill us. Why don’t we buy a $1,000 plan, and (the employee) pays the first $100 and we’ll reimburse him up to $900, and then Blue Cross pays it at $1,000,” said Bradley Taylor, CEO of Next Generation Enrollment, an employee benefits administration firm.
“It’s less expensive for (the employer) to have you on a $1,000 plan than it is to have you on a $100 plan, because (the employer) doesn’t think you’re going to use it.”
The employer deposits money into an account in a variety of ways, but only uses what the employee needs. Whatever is not spent at the end of the year, the employer keeps.
“A lot of employers are saying, ‘We want the cost savings of a high deductible plan, but we don’t want to spend the money unless the employee needs it.’ The HRA offers them that sort of plan,” said Taylor.
Taylor said an HRA plan is useful for almost any size employer. He has seen clients with a staff as small as two implement an HRA and also companies with hundreds of employees.
“It works well for pretty much every employer as long as they are willing to take some risk in claims,” he said. “The utilization of these HRA plans, if they’re deductible only, typically doesn’t go much higher than 50 percent (of company employees). If (companies) run the math and they look at, ‘OK, let’s say an average of 50 percent of what we would spend is $30,000 and our savings is $40,000; we should project to see a savings of $10,000 because our premiums are $40,000 down and we’re probably going to spend $30,000 in claims. If the whole company gets hurt, then we’re looking at $60,000 in claims and we’ve lost $20,000.’ We’ve never seen that happen.”
Most companies actually increase their deductibles in the second year, Taylor said, because of increased savings. HRAs can also save the employee money by reducing their premium dollars, which come out of their paychecks. Employers’ utilize their insurance plan less by absorbing expenses left in the widened gap between the employee’s deductible and where the insurance company picks up the bill, which lowers the employer’s future rate increase.
To help any plan succeed, Taylor said good communication is a must.
“The employee needs to understand the plan (and) the spouse needs to get it. Often times, it’s the spouse at home that deals with the insurance, so maybe inviting the spouse to come in to the employee meeting will help cut down on employee frustration,” he said.
“If the employer is saving all kinds of dough and the employees understand it and can keep their own costs down, then everybody’s happy. If the employees are confused and frustrated and give all kinds of grief to the employer, then the cost savings may not be worth it in the end.”
Flex Spending Account debit cards have become increasingly popular with employees because they simplify communication and cut down on paperwork.
“The flex debit card is fantastic,” said Taylor. “(Employees) go and buy their over-the-counter expenses and their prescriptions; they check out at the register, swipe their card, and that transaction is substantiated right then. They don’t have to provide any receipt, they’re done. They love it.”
Employers like the cards too, because they save on payroll taxes by 7.65 percent since the dollars are pre-tax dollars. The debit cards are not available for HRAs since there is no way of knowing when a deductible has been met.
Priority Health, a Michigan-based health insurance company, has decided to take it one more step and skip debit cards all together.
“We decided to kind of start a new trend where we integrate claims payments, and we automatically pay people’s FSAs out of accounts without them even having to submit claims,” said Chambers. “We have the claims come into us from the provider; we process it against the medical plan. If they still have money that they owe, if they have an HRA, we automatically pay it out of the HRA to the provider. But if they have an FSA with us, we automatically go into the FSA. If they have money to pay for that remaining co-payment or coinsurance or deductible, we just shoot them a check at their house.”
Chambers said that there is no reason not to send out a check. “We know when people owe co-payments or coinsurance or a deductible — we process the claims in the first place.”
In Michigan, Chambers said, HRAs have been very popular.
Jeff Rubleski, director of sales strategy for Blue Cross Blue Shield of Michigan, believes HRAs are a bridge for companies to move to HSAs.
HSAs are tax-advantaged medical savings accounts that are funded much like a 401(k), said Rubleski. An employer can completely fund it or choose to match whatever an employee puts in. The funds roll over each year instead of staying with the employer, and if the employee leaves that company for any reason, the money saved in their HSA stays with them for future medical expenses.
“An employer would want to buy an HSA to really give the employee ultimate control. When you look at HRAs and HSAs, you have the factors I talked about — plan design and flexibility — but when an employer moves over into the HSA realm, they’re saying to their employees: ‘You’re now in control,’ from the standpoint of you’re now bringing in the ability of the employee to also make tax deductible contributions to the HSA.”
While the HSA gives more control to the employee, both plans are consumer driven, and in order to get the best results, Rubleski said companies have to look long-term.
“If you don’t significantly change behavior and create the right culture within your organization that promotes health, you’ll lose the war, because the plan will have a minimal impact over the long run,” Rubleski said. “If you’re not willing to commit to keeping it sustainable, then don’t expect great results from this type of plan. In fact, it will just represent in the short run a cost shift to the employees that they’ll resent.”