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Health Care Consumerism: HSAs and HRAs
 

By Stephen Miller, CEBS   

Updated April 24, 2014. The information below is excerpted from a longer SHRM article, "Consumer-Driven Decision: Weighing HSAs vs. HRAs."

Consumer-directed health plans (CDHPs) typically combine a health insurance plan with a tax-advantaged account that enrollees can use to pay for medical expenses—most commonly a health savings account (HSA) or health reimbursement arrangement (HRA).

Enrollees in CDHPs, whether linked to an HSA or HRA, must keep track of funds in their accounts. If the account's funds are exhausted before the deductible is met in a given year, enrollees are responsible for paying for the difference out of pocket until they meet the plan deductible.

After an enrollee meets the deductible, the plan operates much like a traditional preferred-provider organization (PPO) plan. That is, generally the plan pays for most of the cost of covered services and the enrollee contributes a cost-sharing amount—which varies by plan—until meeting the maximum out-of-pocket spending limit, at which point the plan pays 100 percent of the cost of covered services.

HSAs vs. HRAs: Requirements and Features

Health Savings Accounts
(HSAs)

Health Reimbursement Arrangements
(HRAs)

Plan Design

• HSAs must be linked to a high-deductible health plan (HDHP). For 2013 and 2014, HSA-linked HDHPs must have an individual deductible of $1,250 or higher, or a family deductible of $2,500 or higher. For 2015, the individual deductible rises to $1,300 and the family deductible to $2,600.

• HSAs have maximum total out-of-pocket expenses. For 2013, these maximums were $6,250 for single coverage and $12,500 for family coverage. For 2014, the maximums increased to $6,350 for single coverage and $12,700 for family coverage. For 2015, these maximums will be $6,450 for single coverage and $12,900 for family coverage.

(Also see separate SHRM Online stories on 2014 HSA plan limits and 2015 HSA plan limits.)

• HSAs cannot be used to pay health plan premiums, except for qualified long-term care insurance, health insurance while receiving federal or state unemployment compensation, COBRA plans and Medicare premiums.

• HRAs are often coupled with an HDHP but there is no requirement that they must be.

• There are no government-set out-of-pocket maximum limits specifically for plans linked to HRAs.

• HRAs can be used to reimburse health insurance premiums in some circumstances. But nonintegrated HRAs cannot be used to pay for individual policy premiums on a pretax basis, such as when indivdiual coverage is purchased by employees through a public health insurance exchange.

Unspent Funds

HSA funds are "real dollars" in an employee-owned account. Unspent funds are rolled over to the next year, reducing or eliminating the enrollee’s share of the deductible in subsequent years.

HSA account-holders can invest funds in interest-bearing accounts or, if the administering firm allows it, mutual funds.

An HRA is a notional account controlled by the employer. Most HRAs allow the attributed "funds" to accumulate from year to year; however, this is not required and is at the employer's discretion.

Most HRAs do not pay interest to participants, nor do they allow participant-directed investments.

Funding

HSAs may be funded by employees, by employers, or by both. For 2013, the HSA contribution limits from all sources were $3,250 for single coverage and $6,450 for family coverage (with an additional $1,000 catch-up contribution for account holders age 55 or older). For 2014, contributions increased to $3,300 for single coverage and $6,550 for family coverage (with no increase in the catch-up contribution). For 2015, contributions will increase to $3,350 for single coverage and $6,650 for family coverage (again, with no increase for catch-up contributions).

Employer contributions are not taxable to the employee. Employee contributions can be made with pre-tax dollars through a Section 125 salary-reduction cafeteria plan.

HRAs must be funded solely by employers. Employer contributions are not taxable to the employee.

Portability

HSAs are employee owned and portable on termination of employment. Prior to termination, HSA funds can be transferred from one HSA administrator (including the default firm selected by an employer) to another HSA administrator at the account-holder's discretion.

An HRA's funds generally revert to the employer on termination of employment.

Employers can offer post-retirement HRAs as a retiree-only medical benefit.


There are some exceptions to the requirement to satisfy a CHDP's deductible before the plan will pay for health services received. Under the Patient Protection and Affordable Health Care Act (PPACA), for example, coverage of preventative health care (including annual physicals, vaccines and cancer screenings under specified guidelines) must be provided on a first-dollar basis, outside of the deductible, including for those enrolled in HSA- or HRA-linked plans.


Prescription Drug Coverage

Prescription drugs for chronic health conditions are often not considered preventative care by insurers, and therefore treated as only reimbursable in an HSA-linked plan after the deductible is met. However a growing number of HSA-compliant high-deductible plans have begun treating prescription drugs for chronic conditions as preventative treatment covered outside the deductible (for instance, see this formulary for Blue Cross Idaho HSA-compliant plans).

HRA-linked insurance plans unquestionably may cover prescription drugs outside of the deductible and without cost sharing.

Funds contributed into an HSA on a pretax basis—whether by employees or their employer—can be used to pay for most prescription drug costs paid out-of-pocket by employees, but not for over-the-counter medications except for diabetes supplies and some other eligible expenses.​


Retiree Health

HSAs reserves can be used by account holders to pay for qualified post-retirement health expenses but cannot be limited by employers to post-retirement health. But HRAs, on the other hand, can be designed so that employees vest in funds during active working years but can only use those funds to pay post-retirement health bills.

Employers also have flexibility to tailor post-retirement HRAs in a number of ways, including by designing them to pay only "Medigap" supplemental health plan premiums, for instance.

 

Stephen Miller, CEBS, is an online editor/manager for SHRM.


Related External Resource:

FSA, HRA, and HSA Comparison Chart, Marsh Consulting Group, May 2014


Related SHRM Articles:
 

For 2015, Higher Limits for HSA Contributions and Deductibles, SHRM Online Benefits, April 2014

Do HSAs Lead to a Shift in Prescription Drug Use?SHRM Online Benefits, April 2014

Consumer-Driven Decision: Weighing HSAs vs. HRAs, SHRM Online Benefits, updated April 2014

Misunderstanding HSAs Is Open-Enrollment Hurdle, SHRM Online Benefits, August 2013

Regs Limit Use of HRAs for Exchange-Purchased Coverage, SHRM Online Benefits, January 2013


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