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MRA versus FSA; volumes of information about HRAs but nothing about th

Guest Lynn Grabany

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Guest Lynn Grabany

I've been reading some about health reimbursement arrangements, or HRAs, and for the life of me, I can't figure out how an HRA might help my company and our employees.

As with the majority, our company is seeing severely escalating health care costs, and there are shouts being heard from the head offices to find solutions. Does anyone understand HRAs sufficiently to know if they might provide some level of help? We have a self-insured, unfunded health plan, with BCBS as the TPA. We also have a fully employee-funded health care flexible spending account.

I've found volumes of information about HRAs, but nothing about the strategy of their use? Is there a source you know of that can help me with that?

Thanks in advance.

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The idea is to raise the deductible on your medical plan (and/or make other cost-reducing changes to your plan) so that money is freed up for the employer. This money is then given to employees in the form of an HRA for them to use as they see fit, within regulatory constraints, giving them the control. They will get only the benefits that they, specifically, need. They will also have the ability to carry the money over to the next year if they are healthy, and create a medical expense "cushion" in the event that the money is suddenly needed some day.

There are some recent threads which discuss HRA's and FSA's. Employer-funded FSA's are worth a look if you are interested in HRA's. You'll have to look at your particular situation, what your employees use their health dollars for, whether your employees want this level of control, and whether you can free up enough dollars to make the whole thing worthwhile.

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Raising the deductible is only one way an HRA could help an employer contain costs. Others are as diverse as sponsoring employers themselves. For example, if the current vision plan does not meet the needs of the participants ie. coverage only every two years ect., it could be replaced with an HRA for vision expenses only. Now the employer dollars directly benefit the employees and since the amounts can carry forward, each employee could better manage their own vision costs and those of their families. Since the plans are employer funded and defined by the employer, there are a number of ways to utilize these plans so employers can take back some of the control over their benefit package. One of the keys is to review the whole benefit package and identify what your long term goals and abilities are.

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  • 4 months later...
Guest Rae Posey


Sorry I did not see your message sooner but I can offer some detail on the accounts. The following is a message I posted to another member last week. I hope it will help you as well. Also I am located in Birmingham and will be happy to answer any specific questions you have about HRA programs. RPosey@msaplus.com


This is long but maybe it can shed some light on your issue. Actually it looks as if you may have a few very common misconceptions of HRA's.

For detailed differences between HRA's and MSA's, please see the attached comparison sheet.

Also, contrary to what people may be hearing, HRA's do not require any changes to your current benefit plan, including payroll deductions, plan design etc...yes this includes deductibles! Although many consumer driven programs require complicated changes to networks, TPA's and plan design (including implementing a high deductible), these changes are not required by the IRS, nor are they necessary to make the plan successful.

I will attempt to explain the major mechanics of the HRA as best I can:

The employer might start by determining the average medical cost per employee per year ...let's say it is $5,000.

The employer then decides to let the individual employees "manage" say $1,000 of that expense by establishing a HRA. (The account does not have to be funded up front.)

Now the employee has the responsibility for how $1,000 of their health dollars is spent. The employee receives educational materials to help them purchase health services prudently.

If the employer chooses, they may retain the current plan design, TPA's and networks. Meaning, the employee will have the same deductible as before they had the HRA. Their co-payments will remain the same etc.

At the end of the specified year, any unused portion of the HRA may be rolled over for use on qualified medical expenses (IRC 213(d) in subsequent years.

Effects on the employee and employer:

When the employee visits a physician, the employee pays the co-payment (or deductible if applicable) as usual at the point of service. The remainder of the bill is deducted (reimbursed) from the employee's HRA. If the employee uses the entire HRA, their claims will still be paid as usual. This only means the employee will not have funds to roll over for future health expenses this year. Meaning that the program does not cost the employee more out-of-pocket than they would have paid prior to having the HRA (in case they have a poor health year).

The HRA saves money for the employer by reducing overall healthcare expenses since now the employees are exposed to the true cost of care and are sharing in savings. They see how the medical costs effect their balances and look for ways to cut costs. Also, when wellness and preventative programs are implemented the workforce will be healthier and happier, reducing absenteeism. Also, rollover balances may or may not ever be spent. If the employee terminates employment for example balances may be forfeited.

Hope this helps.

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