Where Do the Savings Come From?
The guiding cost premise is that premium reductions from higher deductibles/OPL will provide funds for the HRA account. In practice, elimination of copays is almost always necessary to achieve the required reduction in premium/cost. Copays are the one element of managed care that employees have readily accepted. Employee education is the key to overcoming almost certain resistance.
HRA Plans are known by many names:
- 105 Plans (after IRC §105)
- HRA (Health Reimbursement Arrangement)
- Consumer-Directed Healthcare
- Defined Contribution Healthcare
- Consumer-Driven Healthcare
Two Basic Types of 105 Plans:
- HRA/High-deductible combination
- Standalone
Medical expense and/or individual insurance premium reimbursement
Multi-option group premium reimbursement
Plan Design
Similar to a 125 (Cafeteria Plan) with some important differences:
- 100% employer money
- No "use it or lose it" rule
- No uniform coverage rule
- If tied to insurance plan, can be more restrictive than 125 plan expenses
Who is covered?
- All employees and dependents, or as limited by plan design
- Former employees and dependents (retiree medical)
Who is not covered?
- Sole proprietors and partners
- Coverage is subject to non-discrimination requirements of ERISA
When is an HRA funded?
- Annually (same as uniform coverage rule)
- Monthly (least exposure to terminations)
- Combination of the two, i.e. 3-4 months initially and then monthly for the remainder of the plan year.
What expenses are covered?
- IRC §213(d) expenses
- Basic medical expenses
- Dental, vision & hearing
- Accident & health insurance premiums
What expenses are not covered?
- Life insurance premiums
- Non-prescription drugs
- Cosmetic procedures
- For a HRA/high deductible plan, many employers limit reimbursable expenses to those eligible under the insurance plan
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