Reinsurance Hybrids/Partial Self-

Funding through HRAs

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Presented by Jim Kabel, CPA

Kabel Business Services1454 30th Street, Unit 105

West Des Moines, Iowa 50266515-224-9400

February 20, 2013

AgendaWe will talk about the history of HRAs.We will cover what an HRA is and what it

can do.We will compare HRAs, HSA’s, & FSA’sExplain what a partially self funded plan is.We will be discussing how HRAs can be

used to create a partially self-funded health plan.

We will be going over how to determine if a partially self funded health plan makes sense.

We will be going over the different options and employer can choose when setting up a plan.

We will go over some actual examples of established plans.

We will cover the responsibilities of the participant, the employer and the TPA.

We will cover the employer’s accounting for HRA expenses.

We will cover new requirements due to new federal government rules and regulations.

History

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HRA stands for Health Reimbursement Arrangement and can also be known as Partial Self Funding.

HRAs became a viable tool to manage health care costs on June 26, 2002 when IRS issued guidance on how they would be treated.

Prior to this time, employers were reluctant to use them because there were so many unanswered questions about how they should be set up and implemented.

Kabel Business Services started offering partially self funded HRA plans in 2003.

HRA Rules

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HRAs must be 100% employer fundedHRA dollars left over at the end of the

plan year can be carried over to the next plan year

Employer reimburses as expenses are incurred. No pre-funding is required. If no expenses occur, the employer saves money.

Expenses incurred in one plan year can be carried over to the next plan year.

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HRAs can cover the employee, spouse and dependents.

HRAs can fund retiree’s benefits.Terminated employees can be

allowed to use any funds that they have in their account at their termination or the plan can specify that they forfeit any unused dollars upon termination.

HRAs can be set up to cover very specific qualified expenses such as deductible and coinsurance only.

HRA benefits are subject to COBRA.The employer can only expense the

HRA as the dollars are paid out. An employer may want to set up a liability for unpaid HRA accounts.

Benefit ComparisonHSA FSA HRA

Special Insurance Required

Yes No No

Employer Contributions Optional Optional Required

Employee Contributions Optional Optional No

Employee Tax Savings Yes Yes Yes

Account Prefunded by Employer

Optional Yes Optional

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HSA FSA HRA

Roll Unused Dollars to Next Year

Yes No Optional

Claims Adjudication No Yes Yes

Long Term Care Premiums allowed

Yes No Optional

Account Retained by Terminated Employee

Yes No Optional

Self Employed Can Participate Yes No No

Health Insurance Paid From Account

Yes No Optional

Convert Account to Taxable Income

Yes No No

Plan Coordination between HSA, FSA & HRA

Can be offered with both an HRA and FSA (limited)

Can be offered with both but must be limited if offered with an HSA

Can be offered with both but expenses cannot be reimbursed by more than one

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What is a Partially Self Funded Health Plan?For our purposes we will be

looking at purchasing a high deductible health insurance plan while leaving the employees on a lower deductible plan with the employer funding the difference between the two.

When a participant incurs a qualified expense, (deductible or co-insurance), they submit the EOB which shows the deductible and or co-insurance expense to the administrator.

The administrator calculates the employer’s share of the bill and reimburses the participant.

The participant uses the employer dollars along with his/her own funds to pay the provider.

Steps to take to determine if a

partially self funded HRA makes sense.

Look for a new plan that has a higher deductible that closely matches the current plan in benefits such as drug benefit and co-insurance.

Calculate the premium savings between the current plan and the proposed higher deductible plan.

Determine the exposure to the employer due to the funding of the higher deductible plan.

Determine if the estimated savings are enough to warrant the change.

Employer Options when setting up a

partially self funded HRA

Does the employer want to keep the employees on the same plan they have been on or modify the plan in some way.

Does the employer want to reimburse the employee for just the deductible or deductible and co-insurance.

Employer determines contribution amounts and carryover opportunity

Employer defines when funds are available and what type of expenses are eligible for reimbursement.

Examples of different plan designs.

Deductible only.(Employer funds a portion of the deductible expense for employees and/or their dependents)

Deductible and co-insurance.(Employer funds not only the deductible but also the coinsurance to reach the out-of-pocket maximum)

HSA compatible design.Stand-a-lone HRA.

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HRA Employee Responsibilities

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Understand what is covered by the plan.

Complete and submit a claim form with receipts attached for reimbursement of eligible expenses.

Use employer dollars combined with their own funds to pay the provider.

HRA Administrator, (TPA), Responsibilities

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Maintain a Plan Document and provide SPD’s to employer to provide to Participants.

Design plan to meet specific company needs.

Adjudicate HRA claims before paying to make sure reimbursement is for qualified expenses

Prepare IRS Form 5500 for the employer if Required.

Report to CMS quarterly if required.Pay Reinsurance fee if required.

How the process works•Employee/participant receives bill from provider.

•Employee/participant is responsible for paying providers for medical services

•Employee/participant submits reimbursement claim to TPA for reimbursement. In some cases TPA receives claim information directly from insurance provider.

•TPA reimburses employee/participant.

•TPA bills employer for claims paid.

New federal government rules and regulations CMS reporting quarterly for plans that

reimburse participants $5,000.00 or more in a plan year.

Comparative Effectiveness Research (CER) Fee. This fee is $1.00 per HRA participant for plans that ended between October 1, 2012 and December 31, 2012. For plan years ending after December 31, 2012 the fee will increase to $2.00 per participant. Flex FSA’s could, if set up in a certain way, be subject to this fee.

Reinsurance Fees. For HRA’s that are not tied to a health insurance plan and are not an excepted benefit plan, (vision & dental only), will be subjected to the reinsurance fee starting in 2014. The fee is paid by the TPA.

Annual and Life Time Limits. Stand alone HRAs may fall under this rule.

Summary of Benefits and Coverage. Needs to be provided to employees annually.

SummaryMany things can be done with

HRA pre tax dollars that cannot be done with other tools

Determine what the employer wants to accomplish to make sure the plan runs the way it was intended.

Because of the changing rules it is important for an employer to work with a TPA or an attorney to make sure that all the rules and reporting are being followed.

Questions?