Good Neighbor Insurance (www.gninsurance.com and www.gninsurance.com) is continuing to update our clients on the new health insurance laws that were signed into law in the spring of 2010.   There are six major coverage options for those in the US and even though some of the rules and regulations are similar for all many differences are there and it all depends on how old you are and for whom you work.  Many critical details of this new insurance law will be clarified in the months and years to come.

These six major coverage options are:

(1) Individual or family coverage (private health care plans)

(2) Employee/employer group option for small businesses (typically under 50 employees)

(3) Employee/employer group option for large businesses (typically larger than 50 employees)

(4) Exchange options through the state you are residing in (fully integrated 1-1-2014 and are quasi-government and private insurance coverage combined)

(5) Medicare (which include Parts A, B, C, and D) for those 65 years onwards

(6) Full government health plans like Medicaid, CHIP, TRICARE, VA and other coverage plans as may be designated by the Department of Health and Human Services based mostly on financial criteria and/or military service.

FSA – Flexible Spending Account

HRA – Health Reimbursement Account

HSA – Health Saving Account

Please note:  HSA plans are medical insurance plans while FSA and HRA are not medical insurance plans.  Instead, FSA and HRA plans are stand-alone benefits to help pay towards  HSA deductibles and/or high deductible plans that do not include co-pays.

Health Reimbursement Account (HRA) option – one of the tools in the Consumer Driven Health Care (CDHC) movement – is a great benefit for employers and employees alike.  HRAs are used in the corporate group settings and not for individual and family plans.

HRAs are IRS sanctioned programs that allow an employer to reimburse medical expenses for their employees in the company that allow for tax advantages / tax savings to offset health care costs.

HRAs are created by the employer and serviced by a third-party administrator or plan service provider.  The HRA is not serviced by the insurance company that handles the employer’s group health insurance policy.

The employer is not required to prepay into a fund for reimbursements, instead, the employer reimburses employee claims as they occur.

The Benefits

• Applies to any health plan, regardless of the deductible structure of a related medical insurance plan or carriers.
• Avoids any need to disrupt the employer’s and employee’s HRA experience when a carrier change occurs. HRAs can be linked with most carriers
• Allows employers greater control of their benefit dollars. HRA is often a better choice than funding a HSA = which is a cash contribution to employees.
• Flexible coordination with an existing or new FSA or HSA

Plan Requirements

• IRS requirements to maintain tax-favored status:
  • Plan document and summary plan description
  • 100% Employer funded (no employee contributions permitted)
  • Claims substantiation required by third party
  • HRA must be non-discriminatory

HRA: Who Pays First?

• Employee pays first
  • Rewards low and moderate user
  • Employer risk (<20%) of dollars
  • Employer pays first
    • High user still pays dollar gap before insurance covers expenses
    • Employer risk (25-40%) of dollars

Employer’s Choice: Important Carryover Provision

• Any dollars left at the end of the year (if employer sets it up that way) can be carried over to the next year.  This provides an incentive for the employee not to spend it.  It is a win-win situation for employees and the company.  Employees spending their own money will make better medical and financial choices, thereby reducing over-utilization by as much as 30%.

 Advantages

• For the employer
  • Reimbursements of qualified claims are tax-deductible for the employer
  • Employers know their maximum expense related to their health care benefit
  • For the employee
    • Contributions that employers make can be excluded from employees’ gross income
    • Reimbursements may be tax free if the employee pays qualified medical expenses
    • Unused funds in the HRA may be rolled into future years for reimbursement (if the employer sets it up this way)
    • HRAs may be offered in conjunction with other employer-provided health benefits including Flexible Spending Accounts (FSAs)
    • Employees do not have to be covered under any other health care plan to participate unlike a HSA which requires a HDHP (High Deductible Health Plan)
    • Employees can be reimbursed for a health care plan that meets their or their families’ specific needs, as opposed to a standard company plan.

Disadvantages

• A frequent complaint is that HRA extremely opaque in regards to their requirements; basically a lot of rules and provisions must be followed by the letter for this to work.  Employers and employees must keep in the rules and with changes in laws each year this can be quite a challenge.  Tax forms will be a challenge and one should use a CPA who is well versed on medical tax rules and laws to get the most out of HRA tax advantages.
• Self-employed persons are ineligible (However, a sole proprietor can employ their spouse and as long as their employable interest, the spouse, does in fact help with the business. Then the employer would need to establish a W-2 to make the spouse’s employment legitimate.
• “Highly compensated” participants may be subject to “certain limitations.”
• Medicare age:  HRA plans are considered “primary payers” subject to Medicare Secondary Payer (MSP) reporting requirements. There are significant penalties for failure to comply with the MSP reporting requirements.  Although the MSP reporting requirements began to apply to certain group health plans on 1-1-2009, CMS has delayed mandatory reporting for HRAs.
• Rules pertaining to their reimbursements are perceived by member participants to be somewhat contradictory and/or even incoherent- leading some to lose contributions which are intended for health care but are learned (after the procedure or laboratory  test) to be disallowed.

Doug Gulleson loves to scuba dive overseas and makes sure he has his US health care and overseas health care, http://onlineglobalhealthinsurance.com/my-travel-guard.asp , information with him at all times when he travels   Keep our blog close by you, www.gntravelinsurance.com, for continual updates on the changes with the US health care system.