Summary

Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are both used by employers to offset expenses associated with medical insurance plans, especially High Deductible Health Plans (HDHPs).

High Deductible Health Plans

These are plans that meet specific criteria outlined by the Federal government. For 2008, a high-deductible health plan (HDHP) is defined as one having a deductible of at least $1,100 for self-only coverage, or $2,200 for family coverage. The out-of-pocket expense limit for a self-only plan may not exceed $5,500; the limit is $11,000 for family coverage. Out-of-pocket expenses include deductible, co-payments and non-premium expenses that the individual must pay for covered benefits under the plan.

High Deductible Plans with an HRA

Health Reimbursement Arrangements (HRAs) are means by which an employer provides exactly the amount of money needed to pay for health care expenses as the employee incurs them. This prevents the employee from having any out-of-pocket expenses as they obtain services that apply toward their deductible. If an employee has not incurred any medical expense, the employer does not spend additional money on that person.  On the other hand, if a person incurred the maximum deductible expenses (i.e. $2,500 for BCBSM Flexible Blue 2) during a plan year, then the employer would have spent $2,500 on this person. 

As an employee uses an HRA debit card or seeks reimbursement, he or she is drawing money from their employer’s funds, which have been set aside for this purpose.  With an HRA, the employer’s money is at stake, not the employee's. Unexpended funds in an HSA roll over year after year, earning interest, and are available to pay for health care costs in later life.

High Deductible Plans with an HSA

With an Health Savings Account, the employer contributes an amount to an employee’s Health Savings Account (HSA) and it becomes the employee's own money.  From that point on, the employee is drawing money from his or her personal account, which is administered by a custodian, typically a bank.

Which is Better?

Both are great strategies. Which to choose depends on your district’s philosophy and finances. We work with some districts that provide an HRA. Their reasoning is that they do not want (or, more likely, cannot afford) to give every employee $2,500 in a lump sum in January.  Instead, they say, "We'll make sure that employees don't have any out-of-pocket expenses, but we're not going to give them MORE than what their actual health expenses are.  We'll ‘reimburse’ them for expenses as they are incurred."  This is why it is called a Health Reimbursement Arrangement (HRA). 

Districts that contribute the full amount of the deductible ($2,500 for two people or a family on Flexible Blue 2) to a Health Savings Account are providing a more generous and favorable benefit. By design, this option creates a desire for the employee to conserve the funds in the HSA. It is their money! Employees are motivated to "save" their own health-related dollars instead of spending their employers’ money and requesting reimbursement as costs are incurred. The theory is that when employees are spending their own money, they will be more conscious of the cost of health care and shop wisely for services.

In the private sector, many employers provide employees with high-deductible plans and might contribute SOME money to their HSA or HRA, but almost never the entire amount of the deductible.  It would be more typical for an employer to contribute $200 to $500...not $2,500.

So, again, school districts that fund all or most of an employee’s deductible through either an HRA or HSA are providing an excellent health care benefit to their employees.