From the October 2009 issue of Ceridian Connection.

With an HRA, employers can help their employees offset the rising cost of health care while saving the company money on the overall cost of offering health coverage. HRAs can also help employees take that first step toward consumer-directed health care.

Health Reimbursement Arrangements (HRAs) can be the ideal solution for employers looking for alternatives to increasing heath care costs, as well as ways to attract and retain valued employees.

These are also great tools for encouraging employees to take greater responsibility for their own health care.

No matter what happens come November -- the date the Obama administration has set for passage of a health care reform bill -- it looks like consumer-driven health care is here to stay.

Recognizing the advantages these plans can bring to employers, Ceridian now offers HRA administration services in addition to its full suite of other health reimbursement products, including Health Savings Accounts (HSAs) and Health Care Flexible Spending Accounts (FSAs).

HRAs offer many advantages
An HRA is a pretax health benefit provided and funded by an employer to reimburse medical expenses of employees, their spouses and their dependents. Reimbursements of qualified claims are tax-deductible for the employer. Employees can spend HRA funds on any 213(d) qualified expenses under the Internal Revenue Service code, including medical services, dental services, co-pays, coinsurance, deductibles and over-the-counter drugs. However, employers can limit the kinds of expenses reimbursed through the HRA.

A recent Culpepper Benefits Trends Survey on health plans offered to U.S. employees showed that 14 percent of participating companies now offer HRAs to their employees.

Approximately 5 percent of firms not currently offering an HRA report that they are "very likely" to offer an HRA within the next year; another 15 percent report they are "somewhat likely" to do so.

HRAs offer many advantages for today's employers and specific advantages over other tax-advantaged health reimbursement plans, including:

• There are few IRS restrictions on the plan design.


• Employers retain all HRA funds until eligible expenses are reimbursed to employees. This is a significant cash flow advantage for employers.


• Funds can be rolled over from year to year -- there's no annual "use-it-or-lose-it" provision. This is a real plus for employees who may not use all of their HRA funds by the end of the plan year. However, HRA funds can be made forfeitable if the employer desires.

Plan design is one of the biggest reasons why many employers choose to offer HRAs. They can design the plan to fit their needs and control how employees use the benefit and spend the funds.

Because IRS guidelines give the employer great flexibility in designing HRAs, employers can change the specifics of the plan every year. For example, an employer may initially restrict HRA funds to deductibles. In subsequent years, an employer may allow extended use of HRAs for wellness programs or similar types of expenses. Employers can even design their HRAs so they can vary contributions from year to year if need be due to economic circumstances or vary contributions based on eligibility criteria.

Some companies choose to offer HRAs as a way to "get their feet wet" in the consumer-driven movement. If an employer currently offers a traditional fully insured plan, the transition to a high-deductible health plan (HDHP) paired with a Health Savings Account -- an increasingly popular offering -- can seem overwhelming. But unlike an HSA, an HRA does not require a high-deductible plan. An HRA can work with any insurance plan or no insurance plan at all.

In addition, an HRA can give employees an incentive to take cost into consideration when seeking health care services by allowing them to roll over unspent dollars for future expenses, yet still retain the tax advantage when the funds are finally spent.

Some employers opt to offer an HDHP along with their HRA even though it is not required. In these cases, the employee may pay for health care first from the HRA and then from their own pockets until the health plan deductible is met. Sometimes certain preventive services, for instance, can be paid for by the HRA before the employee meets the deductible.

An HRA can also work in conjunction with a Health Care FSA for maximum tax savings. This is a popular option for many companies because the HRA contribution for a given year is often much less than an employee's plan deductible. Offering a Health Care FSA allows employees to save taxes on those out-of-pocket medical expenses not covered by the HRA.

Finally, consumer plans with HRAs can provide incentives for wellness. For instance, employers can offer discounts or financial rewards for participation in healthy behavior initiatives and disease management programs. Employee communications regarding HRAs can educate employees about maximizing their benefits by emphasizing preventive services and worksite health improvement programs. A well designed HRA allows employees with persistent and chronic conditions, as well as those who are healthy, to share in the savings created through sound, personal, decision making regarding their health care choices.

Evidence of significant savings with an HRA is just emerging. However, several recent studies regarding HRAs and HSAs indicate that a company could save between 5 percent and 8 percent annually over the next five years and enjoy a 2 percent reduction in trend each year over that period.

Experience the Ceridian advantage
Choosing the right HRA administrator is a critical step in making the entire HRA process a natural part of the way your company does business.

Ceridian offers a streamlined process, convenient account management tools and unprecedented levels of support to satisfy not only your HRA participants, but your HR staff as well.

In addition, your HRA program can be designed around an overall benefits package that attracts and retains productive employees by focusing on such things as wellness initiatives and preventive health solutions, while helping your company offset the rising cost of health care.

For more information, contact your Ceridian representative or call 800-729-7655.