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Reinsurance Hybrids/Partial Self Funding through HRAs Presented by Jim Kabel, CPA Kabel Business Services 1454 30th Street, Unit 105 West Des Moines, Iowa 50266 515-224-9400 February 20, 2013

Agenda

           We 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’s Explain 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.

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History

    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.

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HRA Rules

 HRAs must be 100% employer funded  HRA 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.

5       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.

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Benefit Comparison

HSA FSA HRA Special Insurance Required Employer Contributions Yes Optional No No Optional Required Employee Contributions Optional Optional No Employee Tax Savings Yes Yes Account Prefunded by Employer Optional Yes Yes Optional

HSA FSA HRA Roll Unused Dollars to Next Year Yes Claims Adjudication No No Yes Optional Yes Long Term Care Premiums allowed Yes Account Retained by Terminated Employee Self Employed Can Participate Yes Yes Health Insurance Paid From Account Yes Convert Account to Taxable Income Yes No No No No No Optional Optional No Optional No 7 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

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

   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.

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HRA Administrator, (TPA), Responsibilities

      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.

Summary

    Many 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?