The swell of health insurance acronyms being thrown at your clients on a given day must surely be overwhelming. HRA, PRA, HSA, ACA, TPA, FSA… it’s enough to confuse even an industry buff, let alone an employer trying to navigate the best benefits options for her business.
Two of the most frequently confused health benefits options are Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). Are you able to explain how the two stack up?
HRA: Health Reimbursement Arrangement
An HRA is an IRS-approved, tax-advantaged health benefits plan in which the employer reimburses employees for out-of-pocket medical expenses and individual health insurance premiums. Funds are not paid upfront, nor do they accumulate in a separate account. Rather, employers pay only after their employees incur expenses.
HSA: Health Savings Account
An HSA is an IRS-approved, tax-advantaged financial account in which the individual employee or family pays for their own qualified medical expenses. An employer or third party might choose to contribute to an HSA, but HRAs are really more like IRAs in that individuals set them up and contribute to them on their own. A HSA must be linked to a high-deductible health insurance plan.
HRAs and HSAs are similar in that they are both tax-deductible and they both encourage employee “consumerism,” with rewards for unused funds.
HRA and HSA Differences
|Employer Payment||Reimbursement after expense is incurred||Payment upfront, regardless of incurred expenses|
|If an Employee Leaves||Funds stay with employer||Funds go with employee|
|Who Contributes?||Only employers||Employees, employers or third parties|
|Health Insurance||No restrictions||High-deductible plan|
|Contribution by Employer||Can vary by employee class||All employees receive same contribution|
|Use with FSA||Few Restrictions||Only with restricted, limited-purpose FSA|
|Payment||From company bank account or payroll tie-in||Separate bank or brokerage and policy with insurance company|
|Rules||Broad IRS guidelines||Complex IRS regulations|
In general, with an HRA versus an HSA, employers have more:
- Control (over costs)
- Flexibility (ability to adjust contributions by class of employee)
- Simplicity (easier to understand and administer)
Why do Small Businesses LOVE HRAs?
Over the past few years, personal policies have grown as healthy employees leave group policies in search of personal coverage at a fraction of the cost. As these employees leave, group market premiums continue to increase.
Increasing group health costs coupled with the current U.S. employment crisis have led employers to stop providing group health. In fact, less than 50% of small businesses offer group health, largely due to cost.
HRAs are a much better solution for employers who have canceled or are considering canceling their group insurance plan. With an HRA, the employer is still able to recruit and retain quality employees while fixing monthly benefits costs. At the same time, employees are able to choose an individual plan that fits them rather than joining a “blanket” plan that fits none.
How Agents Are Growing Their Business with HRAs
The biggest change in U.S. health benefits is upon us. In a market where employers are reducing or canceling group health benefits, thousands of insurance agents and affiliates are growing their business by offering Defined Contribution Health Plans. By selling Defined Contribution plans like HRAs, agents and affiliates are able to:
1. Help Existing Clients: Employers can save 25-50% by implementing an HRA.
2. Get New Clients: Saving money on health benefits is a great reason for employers to switch to your services.
3. Earn Better Commissions: Not only will you earn 100% of the insurance commissions from selling individual policies, you will also earn revenue from registering clients for HRA Administration Software.
Those interested in selling Defined Contribution Plans should sign up as a partner with a health benefits software company that offers an HRA administration program, which is recommended to streamline administration and maintain IRS, HIPAA and ERISA compliance.