HSA or HRA: Key Differences, Benefits, And Employer Trends
Lisa Higgins, Contributing Editor
Wednesday - June 28, 2017
HR Daily Advisor
United Benefit Advisors (UBA) says that more than one-third (35.1%) of all
health plans offered employees a way to help pay their out-of-pocket expenses in
2016, through either a Health Savings Account (HSA) or a Health Reimbursement
Arrangement (HRA). Carol Taylor, a UBA committee member and benefits advisor
with D&S Agency, a UBA Partner Firm, expects to see more of the same in 2017
and beyond.
gHealth care costs continue to rise, so employers continue to use cost
savings tools like HRAs and HSAs, in order to provide affordable benefits to
their employees,h Taylor says. And she doesnft see it ending anytime soon.
gUntil we address the real problem driving health care costs—the cost of care
itself—we expect to see this trend continue,h she adds.
HSAs account for the lionfs share of these supplemental savings plans,
according to the UBA 2016 Health Plan Survey. Their use is increasing, with
24.6% of plans offering one, up nearly 22% from 5 years earlier.
Enrollment in HSAs increased, too, rising 25.9% in one year, and almost 140%
in the 5 years from 2011 to 2016. HRAs are less popular, according to the
survey. The percentage of plans offering them has remained flat in the last 5
years, at about 10.5%.
Both Accounts Share the Same Goals
Employers and employees reap benefits from both kinds of plans, but in
different ways. Understanding key differences can help you make the right
decision for your company. As a starting point, assume your company—like just
about everyone elsefs—has seen health insurance costs steadily increasing over
the years, driving you to seek alternatives for the company and for the
employees.
Both HRAs and HSAs are used for two main reasons: to control health insurance
costs and to encourage consumerism. They help control the cost of health
insurance because they make it easier for employees to afford the higher
out-of-pocket expenses that come along with higher deductible (and lower
premium) health insurance plans.
At the same time, high deductible health plans encourage patients to shop for
their health services because they eradicate the belief and expectation that a
doctor visit costs, for example, $25—an idea their HMO co-pay may have
inadvertently encouraged.
Key Considerations
Here are a few of the key comparisons you should make as you decide which
kind of account would best fit your company and your employees:
- Ownership. The company owns the HRA, while the employee
owns the HSA. This means that when the employee moves to another employer or
retires, an HSA goes along. With an HRA, any balance in the account reverts to
the employer.
- Funding. The company alone funds the HRA. In fact,
companies are not obligated to actually fund their HRAs; instead, they may
merely track the accounts on paper and pay expenses as they arise. An HSA can
be funded by the company, by the employee, or by anyone else, up to the limits
set each year by the Treasury department. (For 2017, the maximum HSA
contribution for individual coverage is $3,400 and $6,750 for family coverage.
Employees who are 55 or older may contribute an additional $1,000 per
year).
- Health plan type. An HRA may be used to supplement any
deductible-based health plan. HSAs, on the other hand, can only be used in
combination with insurance plans featuring a sufficiently high deductible, as
determined each year by the Treasury department.
HSA contributions are tax-favored; when the employee contributes, he or she
can deduct the amount (up to the legal limit) from current income taxes; the
account grows tax-free; and when they are used to pay for qualified health care
expenses, withdrawals are not subject to income tax. This is true even in
retirement, making the HSA a valuable secondary means of saving for
retirement.
Because the company owns the HRA and the account does not move when the
employee changes jobs, some companies consider it an employee retention tool.
They also appreciate having additional control over who may have an account, and
flexibility about how the account may be used.
Elizabeth Kay, another UBA committee member, is Compliance and Retention
Analyst at AEIS Advisors. She says, gThe HRA component of a health plan is
essentially self-funded by the employer, which gives the employer a lot of
flexibility, and can be tailored to their specific needs or desired
outcomes.
gFor example, if an employer has a young population that is healthy, it may
want to use an HRA to pay for emergency room visits and hospital in-patient
stays, but not office visits—so the employer can help protect its employees from
having to pay those elarge ticket items,f but not blow their budget.
g[Meanwhile}, an employer with a more seasoned staff, or diverse population,
may want to include prescription drugs as a covered benefit under the HRA, as
well as office visits, hospital in-patient stays, outpatient surgery, etc. Or if
an employer needs to look at cost saving measures, it may want to exclude
prescriptions from being eligible under the HRA.h
HSAs and HRAs each encourage employees to become more engaged in their
healthcare decisions, and provide a means for them to pay for additional costs
that may be involved. The type of plan you choose to offer is an important
decision. For more information about HSAs and HRAs, visit United
Benefits Advisors.