Insurance Update
For readers of Home Health Products, "home" usually means the tangible place where durable medical equipment and other supplies are put to such valuable use. But a new option within the health insurance industry is a product that can hit home in a more emotional way -- by lowering insurance costs, and answering the desires of many consumers to have more control over their own health care.
In an era when consumers are becoming increasingly impatient with the necessary controls of managed care, the new insurance product takes some of that management and places it in the hands of the insured.
What an increasing number of employers across the country are embracing is the power of the Health Reimbursement Arrangement (HRA). The option is actually not new, it's just resurrected. HRAs have been around since being authorized by Congress in the mid-'90s.
As proven in past studies, that increased personal accountability as a consumer can help keep health care costs under control. |
But they never really got off the ground, because of questions about tax treatment and other issues.
But now those questions have been resolved, and the product is taking off. When the U.S. Department of the Treasury and the IRS issued a clarification this summer, it gave companies reeling from double-digit health insurance cost increases an important new alternative. And that's been good news for benefits managers, CFOs and employees.
For many major employers with cafeteria plans, HRAs are now being featured on the menu. Just recently, one of the largest labor unions in the country decided to put the program on its tray -- HRAs will be offered in 2003 to the 350,000 members of the American Postal Workers Union.
Basically, HRAs fall within the category of defined-contribution options. But they have some elements that give them significant and attractive distinctions from other products in that category. For instance, the annual contribution to the account comes from the employer, not the employee. What's more, the unused money rolls over from year to year. In other words, there is no "use it or lose it," the feature that scares away some employees considering flexible spending accounts.
Every individual circumstance is different, but HRAs may create a situation where everybody wins: employer, employee and the U.S. health care system.
Here is how the "everybody wins" theory plays out. With an HRA in place, both employers and employees can take advantage of the lower premiums offered by high-deductible major medical plans. Plus, a HRA puts more control of health care into an employee's own hands: He or she decides how the employer-provided money should be spent. As proven in past studies, that increased personal accountability as a consumer can help keep health care costs under control.
The core concept of a HRA is simple. The employer contributes a defined and non-taxable amount to employee accounts every year. That money can then be used for any medical purpose -- the decisions are up to the employees.
They can use the money for doctor visits and pharmaceuticals. They can use it for treatments not usually covered by insurance, such as laser eye surgery. They can use it to pay for health insurance for dependents not covered by their own plan. And, if they use all the money before the year ends, they can then start using their major medical plan, and begin applying medical expenses to their deductible.
Or, the employee can decide to use the HRA money as a deductible fund. In that scenario, he or she would start utilizing the major medical plan immediately?and use the HRA funds to help cover the deductible until it is met. The employee makes the decision.
There is another variation. A plan can include both a traditional flexible spending account and a HRA. It can be structured so that reimbursements come first from the employee's contribution to the FSA. Perhaps little or no money will be needed to come from the HRA. Then the HRA money can build up, be carried over and added to the next year's employer contribution?and the employee starts building a health care nest egg, perhaps for retiree medical expenses.
By making employees more self-interested consumers -- choosing how to spend HRA money from their employer before expenses start coming out of their pockets -- this option can help control health care costs. Employees become more aware of real costs, instead of just seeing health care costs as $10 or $20 co-pays. With an HRA, the office visit will still be paid for -- but employees gain a greater appreciation of the full real cost. As a result, they become more cautious in doing things such as choosing brand-name drugs over generics, or suggesting expensive tests that offer marginal benefits.
Simply put, HRAs improve and reinvent the concept of choice. But they ensure that catastrophic health care events are still covered.
Placing such a focus on personal decisions means this isn't a product for everyone, but having that choice is the advantage of the cafeteria plans that are now available to 38 million American workers.
To assist in the making of personal health care decisions, HRA plans will usually include a Web-enabled portal to provide employees with more self-help information, such as provider facts and tools for personal health appraisal. There also is access to real-person assistance, through customer service hotlines and nurse lines.
Consumers now have a health insurance product that hits home in a welcome way -- by lowering their health care costs, and by giving them more personal control. And, as a broader benefit, it can help keep a lid on national health care costs.
To find out more about HRAs, who offers them, and to even ask questions of qualified professionals, visit www.HRAhelper.com, a Web site hosted by the Employers Council on Flexible Compensation (ECFC).
Founded in 1981, ECFC is an authority on HRAs and other consumer-directed insurance options. Its nearly 3,000 members include universities, governments, unions, hospitals and corporations employing more than 16 million Americans.
This article originally appeared in the November 2002 issue of HME Business.