Why HRAs Will Become the Foundation of Employee Health Benefits

New business methods and technology now allow employers to enroll employees in a single HRA software platform from which employees access their:

1. HRA benefits;
2. HSA link to any financial institution; and
3. A Private Exchange for purchasing individual/family health insurance.

HRAs started out as supplements to employer health benefit plans for incidental items not covered by traditional health insurance plans. However, because of their enormous legal flexibility and new technology designed to take advantage of this flexibility, HRAs will become the foundation of every employer’s health benefit plan.

For employers who offer group insurance, HRAs will become the front-end delivery vehicle of primary health benefits for fully-insured and self-insured plans. For employers who cannot afford a group health plan, HRAs are becoming the basis of a defined contribution health plan that enables millions of employees to purchase individual/family health insurance policies directly from an insurance company.

Whether as the front-end of an employer-sponsored group plan or defined contribution health plan, here are just a few ways HRAs can deliver better and more cost-effective health benefits to employers and their employees today.

(1) HRAs Improve Retention 

The greatest challenge for employers today is retaining qualified employees. HRAs are extremely powerful for retention because employees accumulate for their future what they don’t spend today, but lose their accumulated balance when they quit (unless they meet employer-specified HRA retiree vesting requirements).  Additionally, employers can vary HRA benefits by class of employee to create further incentives for employees to stay and grow.

(2) HRAs Boost Recruiting Success

The second greatest challenge facing employers today is recruiting quality employees, whether for salaried and hourly positions. HRAs are the ultimate employee recruiting tool because they allow employers to afford and offer much better health benefits than their competition. In addition, using HRAs enables employers with group plans to offer better coverage to new employees by doing the following:

• HRAs Eliminate Waiting Periods - New employees can enroll, submit claims, and have their claims approved for reimbursement, but not actually be reimbursed until the waiting period (e.g. six months) is complete.
• HRAs Provide Coverage for Hourly, Part-time, or Seasonal Employees – Employees can receive HRA allowances tied to their hours worked but forfeit their entire HRA balance unless they work a minimum number of hours or return (after a seasonal layoff) within a specified time period.

(3) Allocate HRA Benefits by Class

Employers have always been allowed to allocate health benefits by using reasonable classifications with wages and retirement, giving different health benefits to employees based of job categories, geographical locations, etc.

But, before HRAs, employers lacked the technology and systems to offer health benefits packages tailored for each Class of Employee based on their recruiting and retention objectives. New HRA technology allows employers to set-up a completely different benefits plan for each Class of Employee (e.g. call center staff, managers, executives) and electronically administer such a different HRA benefits plan with electronic signatures and customized per-class plan documents and HRA SPDs (Summary Plan Descriptions).

(4) HRAs Improve Coverage for All Employees

Besides rising costs, every employee and employer has something they don’t like about their health benefits. HRAs allow employers virtually unlimited flexibility to add benefits (such as smoking cessation, weight loss programs, maternity supplements, or improved coverage for out-of-network providers).  Online tools connected to the claims processing system allow employers to monitor and control the cost of these additional benefits in real-time.

(5) Implement and capture savings from high deductible plans using HRAs

Using HRAs enables employees to move to high deductible plans.  Employers with fully-insured group plans can immediately save up to 50% on their existing group premium without reducing any benefits by switching to a higher annual deductible, and using their HRA to pay employee medical expenses under the new deductible. Employers who do this typically then give back about 1/3 to 1/2 of their savings to maintain the same level of benefits—for a net savings of 15%-30% after HRA reimbursements. Similarly, employers who use HRAs without a group plan can provide employees with funds to offset out of pocket expenses associated with lower-priced high deductible personal health policy.

These compelling benefits make HRAs a logical vehicle for employers of all sizes.