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On June 26, 2002, the U.S. Treasury Department released its revenue ruling allowing Health Reimbursement Arrangements (HRAs), which is likely to be as significant in the evolution of employee benefits as the 1978 laws that enabled Cafeteria Plans and 401(k) plans.
Employers may use HRA plans to fund accounts on behalf of employees for items governed by sections 105 and 106 of the tax code, relating to health expenses and insurance premiums.
The essential components of the HRA plan include a funding mechanism through Sections 105 and 106 of the Internal Revenue Code (IRC) where monies are available to the employee for health expenses and insurance premiums. |
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The employer can hold these funds until needed, and the monies can be rolled over year-to-year depending on the parameters of the plan document. Long Term Care premiums are fundable through the HRA, and there are special rules regarding the priority of payment between the Section 125 account and the HRA for any given benefit.
 Funded annually by the employer
Used to cover an employee's out-of-pocket expenses
Able to carry forward unused dollars from year to year if applicable
The carry-over feature of the HRA encourages conservative medical purchases and motivates members to better
understand how they spend their medical dollars.
Employers also have the option of keeping current deductibles in front of the HRA. The typical product will include your deductible, generally $150 to $300, an annual HRA contribution of $500 to $1,000 and an additional responsibility of $500 to $2,000 before claims are eligible for major medical coverage. Preventative services are usually not subject to the deductible and do not draw upon the HRA. As always, the Wausau Benefits plan design is very flexible.
Recommended coverage for prescription drugs includes a three-tier coinsurance feature, motivating the efficient purchase of pharmaceuticals through our pharmacy benefits manager. By doing so, employees do not have to worry about prescription drugs being subject to the major medical deductible, which might otherwise discourage the fulfillment of necessary medications.
In addition, if an employer offers a flexible spending account (FSA) program, employees can use those FSA dollars to fund any deductible costs. They also enjoy the convenience of automatic reimbursement of FSA expenses if the flex account is administered by Kazdon.
The employer would select a higher deductible health plan. They then would decide how closely they would like to mimic their previous plan. The employer then decides how they would like the plan administered for their employees.
Some options the employer has to consider are:
Whether to reimburse for all expenses or just vision and dental, or if they are just going to reimburse the deductible. Once the plan is set-up the employees will submit their Explanation of Benefits (EOBs) from their insurance carrier to review the claim and remit payment to the employee after the employee has met his/her portion of the deductible. Not all the employees will use the deductible and thus over time a pool of dollars can be collected.
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