As health insurance costs continue to rise, employers and employees are looking for ways to deal with these increases. Over the years, increasing co-payments, adding co-payments to more health services and introducing deductibles have helped to reduce health insurance premiums. However, more needs to be done.
In recent years, utilizing a high deductible plan and adding a Health Reimbursement Arrangement has proven to be a method for reducing health insurance costs. According to insurance company statistics, utilization of the full deductible occurs in approximately 20 percent of the cases. As a result, there is considerable premium savings for the high-deductible plan. At the same time, there is an increase in potential out-of pocket expense for medical costs subject to the higher deductible. The Health Reimbursement Arrangement is created to deal with these costs.
A Health Reimbursement Arrangement is a plan that allows the employer to reimburse the employee for medical, dental and other health care costs that are tax-deductible to the employer and tax-free to the employee. While the HRA (Health Reimbursement Arrangement) can cover a wide array of health care costs, this article will address HRAs that address the increased deductible only. In many cases, the only difference between the benefits of a low deductible plan and a high-deductible plan is the deductible itself.
In designing the HRA, the employer decides what part of the deductible the HRA will reimburse. It could be the initial part of the deductible or later part of the deductible. For example, if the plan has a $2,000 deductible, the employer could have the employee pay the first $500 or $1,000 with the HRA responsible for any amount above either limit, up to the deductible maximum. Once the decision about the treatment of the deductible has been made, the HRA document is created and a third-party administrator is chosen.
When medical expenses subject to the deductible are incurred, the claim is submitted to the insurance company. After the insurance company has processed the claim, it creates an Explanation of Benefits (EOB), which indicates the approved costs that are subject to the deductible. The EOB is sent to the employee. In some cases, it is also sent to the plan administrator, which allows the plan administrator to reimburse the employee as outlined in the plan document. Otherwise, the employee would submit the EOB to the plan administrator.
Employers need to look into all options available to them to stem the increase in health insurance. This is definitely one to consider.
Holly Cochrane, Robert Macallister and John Turco are all agents with the Employee Benefit Division at RogersGray Insurance Agency Inc. They can be reached at (508) 398-7980 or rogersgray.com.