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Overview > Health Reimbursement Arrangement
A health reimbursement arrangement starts out as a financial commitment
from the employer to the employee; IE the employer will pay the first $750
of medical expense for the employee each year. If the employee incurs no
claims, the employer does not make any payment. However, his obligation
generally carries over to the next year and is added to another $750
commitment for year two. HRAs are generally paired with a higher
deductible health plan whose structure is very flexible; it can have
co-payments for office visits, prescription drugs etc.
HRAs are not portable; any balances are forfeited if an employee leaves
the organization. Although HRAs can be used to cover the very broad list
of IRS qualified medical expenses, most employers limit their use to only
services covered by the higher deductible health plan. Claims need to be
submitted and substantiated to get paid from the HRA.
- An affordable health plan that provides comprehensive coverage
for office visits, preventive care, prescription drugs, hospital
costs, and physician services.
- A Health Reimbursement Account funded by the employer that can
be used to pay for services that are the responsibility of the
member, i.e., subject to deductible and coinsurance. If the
member does not use any or all of their dollars, they rollover
to the next year and will accumulate to provide greater
financial protection!
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The SIHO HRA is designed to be easy for both the member and
employer. SIHO offers several HRA design variations to meet the
needs of most employers. They each have differences in Deductibles,
Coinsurance, Co-pays, and suggested HRA funding amounts.
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The
first step in using the SIHO HRA is for members to
understand the particular benefit design!
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It is important to remember that the SIHO HRA has two parts: a
Health Plan and a Health Reimbursement Account. The HRA is to be
used to pay for services covered under the health plan that are
subject to the deductible or coinsurance. The HRA cannot be used to
cover co-payments.
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A health reimbursement arrangement starts out as a financial
commitment from the employer to the employee; for example the employer
will pay the first $750 of medical expense for the employee each year.
If the employee incurs no claims, the employer does not make any
payment. However, his obligation generally carries over to the next
year and is added to another $750 commitment for year two. HRAs are
generally paired with a higher deductible health plan whose structure
is very flexible; it can have co-payments for office visits,
prescription drugs etc. HRAs are generally not portable; any balances
are forfeited if an employee leaves the organization. Although HRAs
can be used to cover the very broad list of IRS qualified medical
expenses, most employers limit their use to only services covered by
the higher deductible health plan, i.e., subject to the deductible.
Claims need to be submitted and substantiated to get paid from the
HRA.
- An HRA is typically paired with a health plan that has relatively
high deductible levels as a way for an employer to help cover some
of the higher financial exposure that their employees have under the
health plan. The employer self-funds the HRA in addition to paying
for the cost of the underlying health plan offered to the employees.
- Although not as common, HRAs can also be created as stand-alone
plans, operating entirely separate from any health plans offered.
- Since the HRA is a self-funded plan, all of the provisions of an
HRA are specified in a Plan Document that is provided to every
participant. The provisions include eligibility, HRA amounts,
eligible medical expenses, and rights upon termination.
- The primary requirements of an HRA are that:
- The plan must be funded solely by the employer and cannot be
funded by salary reduction
- The plan may only provide benefits for substantiated medical
expenses
- The employer determines how much to “credit” each employee’s
HRA account annually. The amount credited to an individual employee
is generally less than a family, and the amount is generally set in
relationship to the deductible level of the health plan. For example
the annual HRA amount may be set at 50% of the deductible level.
- HRA accounts are notational accounts until such time that an
expense is incurred and a claim submitted, then the claim needs to
be funded by the employer. An administrator is typically hired to
process claims and maintain individual employee account records.
- Unused, accumulated balances of an employee’s HRA can be carried
over to subsequent years without dollar limitation. This is an
employer decision and is specified in the Plan Document.
- The employer defines eligible HRA medical expenses. Most restrict
HRA disbursements to only those services that are a covered benefit
of the underlying health plan. An employer may choose to have the
HRA cover the expansive list of qualified medical expenses defined
by IRS code Section 213(d), which includes dental, vision, and
over-the counter medications. An employer could also choose
something between these two levels.
- A Flexible Spending Account (FSA) may be offered with an HRA as
long as the coordination and order of reimbursement between the two
are specified in the plan documents.
- HRAs are group health plans subject to COBRA continuation
requirements. Accumulated balances may be used by the employee to
pay for COBRA premiums.
- Employees cannot receive any portion of their HRAs in cash or
other type of benefit except reimbursement of substantiated medical
expense. HRA amounts paid to employees as cash would be subject to
all applicable payroll taxes.
- The employer determines if terminated employees have any rights
toward unused HRA funds. The majority of employers have employees
forfeit these balances upon leaving employment.
When members need to receive services from a physician or hospital
they should present their SIHO Identification Card just as they
would with a traditional plan. Use of the ID Card ensures that the
claim will be submitted to SIHO and that the provider network
discount will be taken. This saves money for both the member and the
health plan.
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Remember
that the cost is always lower when members use a
participating provider!
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With most providers, the only payment required at the time of
service is a co-payment if applicable, for example a physician
office visit. The provider will then send the claim to SIHO where it
will be processed. |
Most employers will elect to have SIHO process HRA claims using
“Single Submission.” With single submission, after SIHO
processes the claim according to the Health Plan, it will
automatically be routed to be processed against the Health
Reimbursement Account. If the claim qualifies and there is money
left in the Health Reimbursement Account, a check will be cut to the
member. The member is then responsible for paying the provider.
With this process members receive an Explanation of Benefits which
lists the full cost of the services provided, and they are
responsible for paying the provider using the HRA funds.
They begin to become much more aware of the cost and usage of
medical services.
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The employer decides how much money to “allocate” to each
employee’s HRA account. Please note that the HRA Account is a
notational account only until such time that a claim is submitted
for reimbursement, at which time the HRA is funded by the employer
so that the claim can be paid. The experience with HRAs show that
the employer’s actual HRA cash outlay each year is about 20% to
30% of the Allocation amount. This is because 73% of the U.S.
population spends $500 or less on health care costs during the year.
On the other side, 10% of the membership of a typical employer group
will incur 70% of the total health care costs.
SIHO has developed several suggested HRA Allocation amounts to be
paired with the various health plan options. We have also provided
suggestions on the maximum accumulation that should be permitted for
the accounts in order to limit the employers’ financial liability.
The HRA portion of the product is self-funded.
As such the Employer ultimately determines the HRA amounts,
rollover provisions, and maximum accumulation.
Each new plan year every participant receives another full credit to
their HRA account. This amount is added to any unused balance that
will be carried forward from previous years. All SIHO HRA plans
permit some rollover of unused HRA funds.
By improving one’s health, accessing services wisely, and
choosing low cost alternatives, funds will accumulate in the HRA
to provide protection against the higher deductible and
out-of-pocket costs.
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Click here to view/download the HRA
Plans
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This brochure is for informational purposes only and it is not intended
to serve as a legal interpretation of benefits. The entire provisions of
benefits and exclusions are contained in the Summary Plan Description
(SPD), Certificate and Schedule of Benefits. In the event of a conflict
between the SPD and this Guide, the terms of the SPD will prevail.
