What is a Health Reimbursement Arrangement:
An HRA, or health reimbursement arrangement, is a health spending account that is provided and owned by an employer and implemented to both aid employees with their annual medical costs and lower the overall medical insurance bill for the business. Each employee in the plan gets a set dollar amount of funds allocated into their HRA account each year to use tax-free towards qualified medical, pharmacy, dental and vision expenses, as determined by the employer. Since HRAs are highly customizable, they can be a creative way to satisfy the insurance wants, needs, and budget of both the employer and employees.
The HRA Strategy:
The essential function of an HRA is to allow businesses to offer a leaner, less expensive medical plan while keeping the deductible/out-of-pocket maximums for employees on par with richer, more expensive plans.
The savings on the employee side is simple. A portion of their annual deductible/out-of-pocket (depending on plan design) is paid for with funds from the HRA, and their payroll deductions are lower in comparison to being enrolled in a richer, more expensive plan.
The business saves money by offering a leaner medical plan with a higher deductible and lower premiums, reducing their employer contributions, and additional savings is realized when the final HRA reimbursements do not exceed the break even point.
I recently completed an annual review and renewal for a client of ours with 45 employees. They implemented an HRA last year, and I’ve briefly broken down their strategy and performance in a case study. For a copy of this case study, click here.
HRAs are one of the many creative insurance vehicles that can strengthen a company’s employee benefits offerings while protecting the business’ bottom line. Ask your insurance broker if an HRA strategy would make sense to implement, or reach out to us at Silberman Group for additional information.