Core Documents: Beware of HRA Products Designed by Insurance Carriers

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Employers who've discovered the benefits of using a high deductible group health insurance policy in combination with a Health Reimbursement Arrangement should beware of insurance carrier prepackaged HRA products. Read on to find out why.

Gene Ennis, CFC, the President of Core Documents, the nations leading provider of Section 125 and HRA Plan Documents, says that small employers should be wary of insurance carriers who design and market their own HRA products.

What is an HRA? In 2002 the IRS issued Revenue Ruling 2002-41 and IRS Notice 2002-45 that brought about a new employee benefit that helps employers reduce the high cost of providing group health insurance to their employees. This new employer sponsored and employer paid benefit is called a Health Reimbursement Arrangement, or HRA Plan.

The two most popular ways this new HRA benefit has been used by employers include:

Comprehensive HRA Plan - The employer simply announces to their employees in a group meeting: "We can no longer afford group health insurance. Health insurance costs have doubled over the last five years. In its place we've established a new company sponsored HRA Plan that will reimburse each employee $200 a month for any of the following expenses allowed under IRS 213(d). By the way, in addition to just about every medical, dental and vision care expense's that we will reimburse, you'll notice individual health insurance can also be reimbursed. Individual health insurance can be up to 50% cheaper than group health insurance."

Deductible Gap HRA Plan - Many more employers are bumping their deductible up drastically, say from $500 per year to $5,000 per year and they establish an HRA plan to pick up employee deductible expenses in excess of $500 (from $501 to $5,000, or $4,500). This benefit is only payable to those employees who experience a deductible expense in excess of $500. Actuaries will tell you the number of employees who will experience a deductible in excess of $500 will be between 15% and 20% of the group. Premium savings became a mathematical equation. You calculate the total premium savings and deduct the expected 20% HRA claims.

This "beware" message deals primarily with the "Deductible Gap HRA Plan" concept. Effectively this new concept allows the employer to become a "co-insurer" and share in the savings or profit, especially when usage is low. Initially insurance carriers balked at this new concept because it effectively slipped profits right out of their coffers.

The problem was the actuarial calculations insurance carriers use to establish premiums for a high-deductible health insurance policy. High-deductible premium calculations can be much different than the actuarial premium calculations for a low-deductible policy. High-deductible premiums did not calculate, or factor in a "third-payer" insulating the employee from the high-deductible. This changed the dynamics and usage of the policy and effectively slipped too much money from the insurance carrier coffers directly into the back pocket of the employer.

You no longer hear of insurance carriers balking about the HRA concept and restricting their policies from being coupled with an HRA Plan. Why? Many insurance carriers have introduced their own HRA plan designs and changed the actuarial premium calculations back in their favor. Can anyone say "SICKO"?

My advice, don't buy prepackaged HRA plan designs from insurance carriers. Buy your high deductible health insurance plan from the carrier with the best price and buy the required plan documents and administration elsewhere.

Core Documents, Inc., the primary source in the U.S. for Section 125 and HRA Plan Documents can help employers establish an HRA Plan for only $299 plus $15 shipping and handling. The software to self-administer the HRA is free or you can outsource the HRA administration for as little as $8 a month per employee. See Core Documents at or or call them at 888-755-3373 and speak to a consultant Certified in Flexible Compensation by the Employers Council on Flexible Compensation.


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Beth Davis, VP
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