HRAs to fund the gaps in HSAs

[Don Levit]

Would it be possible for an employer to use an HRA to fund the gap between the HSA balance and the catastrophic deductible?

Assume an employer believes that 7% of his employees will exceed their deductibles.

A group HRA is set up to fund this gap, which could be easily determined once a year.

Reinsurance is bought to fund the gaps in years which exceed this 7% estimate.

Also, for COBRA purposes, could the former employee continue to self fund his HRA?

If so, how would that amount be determined?

Don Levit

[Guest K Flett]

The HRA can be used to reimburse employees for limits beyond the HSA. As long as employees are not double dipping and getting reimbursed from both the HRA and HSA, a plan design feature could be established this way. Any HRA election funded by the employer could be used for any possible Cobra expenses; it's entirely up to the employer how much they want to apply as reimbursed expenses through the HRA. The employee demographics should help estimate future Cobra expenses.

[Ron Snyder]

This doesn't conform to usual HRA or HSA design. Are both plans being funded currently? If so, the HSA cannot cover the same expenses as the HRA. Your situation apparently conforms to this model in that the HRA is established to fund the gap between the HSA account balance and the deductible. This causes several problems:

1. The gap could be 100% since employees are not required to leave money in their HSAs.

2. How do you know what the HSA balance is?

3. Where does the HRA kick in?

4. Can you cap an HSA, a form of IRA?

5. What is a "group HRA"? The design you describe sounds more like a medical expense reimbursement plan than an HRA.

6. You mention a "deductible" and a "catastrophic deductible". What is the difference?

7. You mention using the HRA to fund the gap and then talk about funding the gap with reinsurance. Which is it?

[GBurns]

While it is possible in theory, to use an HRA to fill the gap between an HSA and the medical plan deductible, it seems impractical to do what you want to bo in the manner you describe. It should be impractical to administer etc. Why would anyone want to go to all this trouble when a standard section 105 medical reimbursement plan would do the job very simply?

What is a group HRA?

The purpose of BOTH HRAs and HSAs is to fund the deductible. Why would the employee accept the higher deductible of the catastrophic plan then set aside less than that amount in the HSA so as to leave an amount for which the HRA would be needed?

HRAs are employer funded and have no employee contributions and could not be self funded by the employee anyhow.

As far as I know the employer must contribute equally to every eligible employee and therefore should not be able to select the few as you identified. If the employer has to contribute to every employee, then there would be no purpose for or benefit from your plan design.

Reinsurance of the gap seems pointless and should be impossible to get, not only because of the small amount involved, assuming that it is even possible to identify an amount of potential liability, but also because of the difficulty in claims adjudication.

Since the HSA is the employee's own private information and not under employer control and so the HSA account balance is not known, How would you know when to "kick in" the HRA?

[Don Levit]

Thanks for all your responses. I have been out of town since my posting, so I finally get a chance to respond.

Let me amend my question a bit.

Can the employer set up a group HRA that funds the first $25,000 of expenses for all employees and their spouses and dependents, per year.

Reinsurance is then purchased which pays benefits beyond the $25,000 of family benefits, per year.

I have designed a plan which enables the employees to accrue $10,000-$15,000 of benefits per year. So, those with few or no claims could be able to accrue the $25,000 in year 2, leaving no exposure for the employer beginning in year 3.

(This is an employee-pay-all plan).

The goal is to have only those employees with large family expenses in the first 2 years as a liability for the employer's HRA in year 3.

If we assume that 7% of the employee census will not be able to accrue the full $25,000 over 2 years, the employer will have a relatively low liability for his employees.

The employees with low claims benefit their employer by being able to cover the first $25,000 of expenses. By having a much higher deductible under their group plan, the employees are able to recoup a good percentage of the group premium.

What do you think?

Don Levit

[Ron Snyder]

Two of us already asked what is a "group HRA". You re-used the term without explaining. Is the $25,000 per employee, per covered individual or for a group of employees? And what does the coverage level have to do with an HRA?

As previously noted, HRAs are employer funded, and cannot be an "employee-pay-all plan".

The participants may submit their out-of-pocket unreimbursed medical expenses for reimbursement from their individual health reimbursement account.

What is an employer's liability in an "employee-pay-all" plan?

Your whole example makes no sense. Employee funds may not be carried over from year to year since they are part of a flexible benefits plan election.

I think you ought to hire a consultant who understands health plans and the laws that apply to them for guidance.