13 SEPTEMBER, 2017
Are Health Reimbursement Arrangements (HRAs) Better Suited for Hospitality Health Plans?
As Hospitality employers generally cover two-thirds of employee health cost, it’s not surprising that high deductible plans – with their lower premiums and employer health cost – have gained traction in the industry. An upside can certainly be had; especially with young, healthy workforces, primarily seeking preventive care and less costly services. At the same time, those needing more expensive chronic or extensive care, pay more out of pocket.
Key to achieving that upside, however, is how well hospitality’s diverse workers “understand their benefits” and effectively manage the plan’s complexities and potential high cost. That’s where health savings vehicles and consumer support services can change the game. Simply offering easy access to education that resonates may be the answer for some. While others also offer a means to help bridge the high deductible’s chasm and buffer out-of-pocket cost impact.
Over the past several weeks, we’ve been reviewing Consumer Driven Healthcare through the lens of hospitality employers. We began with a High Deductible Health Plan overview, followed by Health Savings Account (HSA) basics. To check out our HDHP overview (Part 1) and HSA basics (Part 2), click https://hospitalitybenefits.com/News-Press.
Today, we look at HRAs, how they differ from HSAs and why HRAs are preferred over HSAs by some hospitality employers.
HRA Considerations
Health Reimbursement Arrangements (HRAs), like HSAs, are tax-advantaged savings vehicles intended to provide enrolled participants with some security and means to pay for eligible health-related expenses.
Like HSAs, HRA funds accumulate for future pretax health spending to offset expensive deductibles and out-of-pocket costs. HRAs, however, temper some plan cost liability in allowing unused funds to remain with the company upon employee termination. Employers also have discretion over plan portability and can further limit the categories of IRS approved expenses. With Hospitality being a high turnover industry, enabling tax-free employer funded savings that accumulates over time but remains with the company at termination can help retention.
Key Differences Between HRA and HSA
- HRAs can only be used for IRS approved expenses as long as the available funds were incurred by the employee/dependent during a period of HRA eligibility.
- The Employer determines the amount and frequency of pre-tax HRA contributions.
- Employees cannot make HRA contributions through pretax payroll deduction.
- HRAs are subject to COBRA rules.
Current hospitality benchmarking indicates HRA-HDHP pairing is preferred significantly over HSA and slightly over no funding mechanism. Of the nearly 70% of hospitality employers offering at least one HDHP, 38% pair an HRA, while 26% offer HSA and 36% have no savings vehicle at all. Greater control over HRA plan design, fund rollover and unused fund retention, as compared with HSAs, are likely decision factors for hospitality and other high turnover industries.
While the decision to offer an HRA will vary by employer, we want you to know that we have successfully assisted hospitality employers, large and small, with decision support analysis, design strategy, and HRA program implementation. Regulations continue to evolve and we will continue to monitor developments to keep you apprised. If you would like to learn more about HRAs’ potential financial upside and whether it’s a good fit for your workforce, please email [email protected] or call 703-810-3800 for a complimentary analysis.
For more HRA details, read on….
HRA Specifics and Mechanics
HRA + HDHP. Integrated HRAs (also called deductible-only HRA, linked HRA, or Group HRA) are ACA compliant and, like HSAs, require pairing with a high deductible plan. One Person Standalone and Retiree HRAs do not require group health plan participation.
Minimum Deductible Amounts. A Deductible is the amount a participant pays out of pocket before insurance kicks in. The Minimum Deductible Amount is the lowest level deductible amount allowed for qualification as a High Deductible Health Plan. Deductible minimums can change each plan year. Following are the minimums for plan years 2017 and 2018:
Self-Only: $1,300 for PY 2017 (PY 2018 – $1,350)
Family: $2,600 for PY 2017 (PY 2018 – $2,700)
Contribution Limits. The total pretax amount that can be deposited into an HRA by employers each year. There are no government-set out-out-of-pocket max limits, unlike with HSAs.
Investments. HRA funds cannot be invested and do not earn interest, unlike HSAs.
COBRA Requirements. COBRA generally applies to group health plans maintained by employers having at least 20 employees on more than 50% of typical business days in the previous calendar year. And unlike HSAs, HRAs are subject to COBRA continuation. As COBRA must mirror active employee coverage and be offered to each qualified beneficiary, establishing HRA premium and managing liability for continuation coverage should be carefully considered in program design. Plan features can be implemented to help minimize employer risk of loss.
Small Business HRA. Do you have fewer than 50 employees? A new kind of HRA created by the Small Business Healthcare Relief Act (SBHRA) available to businesses with fewer than 50 employees, it allows businesses to reimburse employees who purchase individual health insurance plans. Company contribution amounts are capped annually at $4,950 for single coverage and $10,000 for family coverage. Employees who participate in a SBHRA can still claim premium tax credits under the Affordable Care Act (ACA); however, tax credits are adjusted by the amount of the company’s contribution. Small Business HRAs are not subject to COBRA requirements.
Next, we’ll look at how consumer support services can make or break a consumer-driven health plan’s success. Stay tuned…
About Hospitality Benefits: Empowering leading hotel companies to lower healthcare costs by bringing hospitality companies onto one purchasing platform and equipping HR and hospitality leaders with tools and services to manage staff, compliance, employee appreciation and understanding of their benefits. Because our staff has an unprecedented blend of hospitality know-how and benefits expertise, we understand your priorities and deliver services seamlessly in a manner traditionally enjoyed by only the largest companies in the industry. To get in touch and/or learn more about how we can help you contain those ever-growing (and threatening) healthcare costs, visit www.hospitalitybenefits.com.