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CDHP 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:
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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.
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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 Part 1 and Part 2
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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.
