Health Reimbursement Arrangement (HRA) health plans are powerful tools for small businesses because they are one of the only employee benefits vehicles allowed to reimburse insurance premiums tax-free. HRA health plans also give small businesses complete control over plan design and cost. For example, with an HRA health plan the small business decides:
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The amount to contribute to employees' health expenses.
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Which eligible medical expenses the HRA health plan will reimburse.
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What happens to unused HRA funds at the end of the year.
Because HRAs are so flexible, there are many different ways for businesses to design HRA health plans. In this article, we'll run down the top seven ways businesses design HRA health plans to save money and meet their employee health benefit goals.
HRA Health Plan Design #1: Integrated HRA
An integrated HRA is the most widely-known type of HRA health plan design. An integrated HRA is also known as a deductible HRA, or a linked HRA. With an integrated HRA, a business has a group health insurance plan in place, but is looking to lower the cost of health insurance premiums while keeping employees' level of coverage the same. With an integrated HRA:
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The business purchases a high deductible health plan to achieve savings with lower premiums (for example, they switch from a $500 deductible to a $2,500 deductible).
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The business sets up an integrated HRA to reimburse employees for their additional medical expenses associated with raising the deductible. Following the example above, the integrated HRA would cover the difference between the old and new deductible ($2,000 annually).
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The integrated HRA is generally designed to only reimburse out-of-pocket medical expenses related to the higher deductible and does not cover individual insurance premiums. Likewise, businesses often require employees to submit the insurance Explanation of Benefits (EOB) statement when they request reimbursement.
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The integrated HRA is offered only to those at the company who take the group health insurance plan, because it's a supplement to help employees with their deductible costs.
How does a business achieve savings with an integrated HRA? They achieve savings because on average, employee utilization of the integrated HRA is only 30-40%.
Tip: At Zane Benefits, we call this GroupHRA.
HRA Health Plan Design #2: Defined Contribution HRA
With a defined contribution HRA, also known as a stand-alone HRA, the HRA health plan is the entire employer health benefits plan. In other words, the defined contribution HRA is not linked to a group health insurance plan. With a defined contribution HRA:
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The business does not offer a group health insurance plan.
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The defined contribution HRA health plan is designed to reimburse employee's individual insurance premiums, and other medical expenses as they choose.
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Employees purchase their own individual health insurance, and seek reimbursement for the premium from the HRA health plan 100% tax-free.
How does a business achieve savings with a defined contribution HRA? The business has full control over the HRA health plan allowance amounts, and will not face annual rate increases like with a group health insurance plan.
Tip: At Zane Benefits, we call this ZaneHRA.
HRA Health Plan Design #3: Premium-Only HRA
With a premium-only HRA, the HRA health plan is designed to only reimburse employees for their individual health insurance premiums. A premium-only HRA is essentially a defined contribution HRA, but only for premium reimbursement.
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The business does not offer a group health insurance plan.
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The premium-only HRA health plan is designed to reimburse employee's individual insurance premiums only.
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Employees purchase their own individual health insurance, and seek reimbursement for the premium from the HRA 100% tax-free.
How does a business achieve savings with a premium-only HRA? Just like a defined contribution HRA, the business has full control over the HRA health plan allowance amounts.
HRA Health Plan Design #4: Cost-Sharing HRA
With a cost-sharing HRA, the HRA health plan is designed for the business and employees to share in the cost of the benefit. This type of HRA health plan design can be incorporated into an integrated HRA or defined contribution HRA. With a cost-sharing HRA:
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The business can add an HRA deductible, where employees are required to pay out-of-pocket a certain amount before the benefit kicks in.
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The business can add an HRA co-insurance, where the employer reimburses a portion of all eligible medical expenses (such as 80% of insurance premiums).
How does a business achieve savings with a cost-sharing HRA? Employees are encouraged to make consumer-driven decisions because they are sharing in the cost of their health care (for example, buying generic prescriptions over more expensive brand name prescriptions).
HRA Health Plan Design #5: New-Employee HRA
A new-employee HRA offers businesses a way to provide employee health benefits to new hires on their first day of employment, before they become eligible for regular health benefits (for example, a 60 day waiting period for the group health insurance plan). With this type of HRA health plan:
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The new-employee HRA is designed to reimburse employees based on tenure with the company (for example, full time employees working 1-59 days at the business).
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The business decides what types of medical expenses to reimburse (for example, if they cover insurance premiums employees could use the HRA for COBRA payments before they join the new group health insurance plan).
How does a business achieve savings with a new-employee HRA? The business saves money by not enrolling employees in the group health insurance plan until after their introductory period (when turn-over is high), and uses the new-employee HRA for recruitment and retention.
HRA Health Plan Design #6: Retiree HRA
With a retiree HRA, the HRA health plan is designed to reimburse employees only after retirement.
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The business decides what types of medical expenses to reimburse (for example, insurance premiums and/or other out-of-pocket medical expenses).
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Eligibility for the HRA health plan is limited to retired employees.
How does a business achieve savings with a retiree HRA? A retiree HRA allows an employer to provide an extended and less expensive alternative to COBRA health insurance, and can help older employees with early retirement.
HRA Health Plan Design #7: Supplemental HRA
With a supplemental HRA, the HRA health plan fills the gaps that some group and individual health insurance plans do not cover. With this type of HRA health plan the supplemental HRA is designed to cover only certain categories of expenses such as maternity, dental, wellness, and vision.
How does a business achieve savings with a supplemental HRA? If the business offers a group health insurance plan, the business can save money by offering a more basic plan and using the HRA to supplement what the group plan does not cover. If employees have individual health insurance plans (or are covered fully by a spouse's employer), the supplemental HRA can be used to cover additional health care expenses.
HRA Health Plan Classes
While not a specific type of HRA health plan design, it is important to also note that HRA classes can be applied to any HRA health plan design. With HRA classes:
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The business designs different HRA health plans for different classes of employees.
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Classes of employees are defined by bone-fide job criteria such as job description, tenure with the company, location, or full-time/part-time status.
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For example, a business could provide $250/month to managers and $150/month to associates.
How does a business achieve savings with HRA classes? With this HRA health plan option, businesses can retain key employees and completely control their employee health benefits.
