HRA: The Employer’s Tool
Although—or even because—they lack portability, the case for HRAs can be compelling in some circumstances, given that HRAs, which come with few requirements, provide a great deal more flexibility to employers than HSAs.
“Employers have more control over the money in an HRA,” said Domaszewicz. Because HRA funds do not belong to an employee, the employer retains any funds left in an HRA when an employee leaves the company. This is a particularly attractive feature for employers in industries, such as retail or fast food, with traditionally high turnover.
Moreover, an HRA can be an attractive option from a cash flow perspective because the “funds” attributed to the HRA “account” are notional in nature (tracked within the accounting system) but actually funded only when a claim is presented.
“Employers that choose an HRA tend to be more paternalistic and they find that adopting an HRA is easier,” said Domaszewicz. “Because only the employer is putting money in the HRA, the employer gets to make all the rules for the benefit plan.” For example, if an employer does not want to adopt the minimum deductible required for an HSA, it can adopt an HRA plan with a lower deductible. Alternatively, HRAs can be linked to plans with out-of-pocket maximums that are higher than the limit the government sets for HSAs.
“With an HRA, employers have more flexibility in terms of the deductibles they choose for the health benefit plan, and even whether they carve out pharmacy benefits,” said Elizabeth Wolff, a principal at Aon Hewitt in Chicago.
“There are places where HRAs are still a good choice,” added Aetna’s Riedl. “Implementing a plan with a deductible that’s not as high as you might see in an HSA-compatible plan might be an easier transition, initially, from richer designs.”
HSAs allow only preventive care to be outside the deductible and covered 100 percent on a first-dollar basis. But “If the employer wants to have certain benefits not subject to the deductible, if they want to steer people to designated high-value health care centers of excellence or have particular types of care covered at 100 percent, HRAs allow them to do so,” Riedl observed.
By Joanne Sammer and Stephen Miller