Producer Focus

We’ve created an effective way to increase your production of popular HRA plans

In June 2002, the IRS gave birth to a brand new health plan option -- the Health Reimbursement Arrangement (HRA). By formally approving the HRA, and by relieving it of many of the traditional constraints on flexible spending accounts, the IRS has given employers a new option with wide-ranging significance.

HRA’s give the employer leverage and flexibility through the purchase of a higher deductible health insurance policy, to self-fund a portion of the deductible through the HRA. This transfers dollars for the employees’ benefit without creating additional costs.

Employers have a variety of options once the HRA is selected. Employers may choose to limit the funding of eligible expenses under the insurance plan, or allow unused amounts by employees to carry over to subsequent years.

HRA's have several advantages:

• They are not subject to the “use it or lose it” rule, so unused credits can carry over into future years
• They are not subject to the “immediate availability” requirement, so reimbursements may be limited to current account balances
• HRA accounts may be credited with earnings
• HRA assets may be used for health insurance premiums
• HRA's may pay for post-retirement health claims and even for dependents’ claims after the employee dies
• HRA’s may be established for any size group

HRA's have a few limitations:

• HRA's must be funded solely with employer dollars, not with employee dollars through salary reduction
• HRA's may not be included in cafeteria plans
• In general, employees must spend their HRA amounts before tapping flexible spending account balances (although careful drafting can change that priority)
• HRA assets cannot be used for long-term care insurance.

Benefit Design Options:

Increasingly, employers want the flexibility of creating a plan that will save money without sacrificing the coverage for their employees. This is a typical example:

Assume an employer currently has a health insurance plan with a $500 deductible, and seeks premium relief by moving to a $2,000 deductible. Assuming the employer wants the employees to maintain a $500 deductible, the HRA is established to self-insure the balance of $1,500 for each participating employee. In the event an employee incurs medical expenses, he/she will be responsible for the first $500 of expenses. This is the employee’s deductible for the plan year. After the employee’s deductible is met, the employer through the HRA pays additional expenses incurred during the year. Any additional expenses incurred will be covered under the health insurance policy, subject to policy terms and condition.

Under an insured plan, employers pay premiums to cover predictable expenses. Using the HRA concept, the employer only pays when members need services and will retain the savings when treatment is not necessary.

Stirling Benefits can assist you in designing your plan. As employers look for solutions to reduce benefit plan costs, the HRA concept is becoming the option of choice. Producers working with Stirling Benefits will find administrative options that suit your goals and objectives.

Contact us, and we’ll put our experience to work for you.