A look at how HRAs can be useful in gauging whether to go self-insured

Health Reimbursement Arrangements (HRAs) are plans designed to help both employers and employees lower health care costs.

Allowed under sections 105 and 106 of the Internal Revenue Code, they enable employers to reimburse employees for out-of-pocket medical expenses not covered by insurance and are often combined with high-deductible health plan coverage.

“Employers benefit from offering HRAs by reducing insurance costs and restructuring health benefits,” says Ron Filice, president and CEO at Filice Insurance. “By moving employees to high-deductible health plans, costs are more predictable and controlled as employees are encouraged to become better health care consumers.”

HRAs allow employees to use employer contributions only for qualified medical expenses.

Smart Business spoke with Filice about how HRAs work and how they can be a first step toward the decision to become self-insured.

What are HRAs and how do they work?

HRAs are employer-paid health care arrangements that are often paired with high-deductible health plans to lower health care costs.

Typically, an employer creates an unfunded HRA account for each participating employee and reimburses the employee up to the HRA’s account balance for substantiated medical expenses not covered by insurance, such as insurance premiums, deductibles and copayments.

If an employer chooses to offer an HRA, it establishes eligibility rules, a maximum reimbursement amount and a list of eligible expenses. The list must comply with section 213(d) medical expenses as defined in the Internal Revenue Code. After incurring medical expenses, employees submit claims to the HRA administrator for reimbursement. For employers, all HRA reimbursements are tax-deductible.

For employees, contribution amounts made by employers are tax free and reimbursements for medical expenses are also tax free. Employees also benefit from the protection HRAs provide against catastrophic medical costs.

Can these funds be carried over from year to year?

HRA funds can be used to cover a wide range of health care expenses, but unlike flexible health spending accounts, HRAs can be designed to allow funds to be carried over year to year. However, unused HRA amounts may not be cashed out — only carried over to the following year.

Also, employers may establish account caps on total HRA account balances and include rollover maximums on carryover balances.

How can HRAs save money for employers?

Take the example of a group that has 150 employees and 201 covered dependents. The total annual premium for that group with a $250 deductible would equal a little more than $259,000.

If you increase the deductible to $1,000, the HRA reimburses employees for the additional $750 out-of-pocket costs.

If you just look at the premium, it drops to about $61,500 with the higher deductible, a savings of nearly $198,000 with the new plan. If 225 people satisfy the $1,000 deductible, the reimbursement cost comes out to $168,750.

When you subtract this from the premium savings, you get a net annual savings of $29,000.

How can they act as a first step toward becoming a self-insured plan?

The goal of an HRA is to lower health care costs, but it also allows the employer the opportunity to set ground rules as to how the plan will function.

In that way, similarities can be drawn with going self-insured, when a company manages its own coverage and bears 100 percent of the risk when it comes to claims.

Insurance brokers will often encourage groups with a couple hundred employees to try an HRA before going self-insured to get an idea of the claims being paid. How much are those claims and what are they for? If you can find a comfort level at the HRA stage, you may want to look at going self-insured. ●

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Potential new ACA filing requirements could strain HR bandwidth

The IRS recently released draft forms for companies to report certain employee information under the Affordable Care Act (ACA) and IRS code sections 6065 and 6066.

While these forms are merely drafts and are not intended for filing, they do provide important insight into the reporting obligations of entities that provide minimum essential coverage.

Because these forms are new, it may take the current payroll and benefit system providers a while to prepare.

Employers subject to the provisions of the ACA should consider using a Human Resources Information System (HRIS), which is an electronic system that is used to track and store employee data.

Employers can use the system to easily and efficiently manage things like employee records, payroll and benefit processes.

If a system is not already in place, now may be a good time to begin weighing options and have the necessary discussions to get things moving.

Smart Business spoke with Ron Filice, president and CEO at Filice Insurance, about the upcoming ACA reporting requirements and how an HRIS could help companies stay in compliance.

Who is most affected by the potential new filing requirements under the ACA?

While small employers — those with fewer than 50 full-time equivalent employees — that sponsor a self-insured group health plan will have a filing requirement, it’s large employers that sponsor either insured or self-insured plans that will have the heavier filing burden with the introduction of forms 1094-C and 1095-C.

The deadline for reporting is Feb. 28 — if electronically filed, the deadline is March 31 — of the year following the year in which coverage was provided, beginning in 2016 for the year 2015. Individual employee statements must be provided by Jan. 31.

Because these forms are drafts, instructions are not included and the forms may undergo significant changes before the final versions are released by the end of the year.

Nevertheless, large employers are strongly advised to implement internal systems, such as HRIS, to efficiently track the required employee and benefits information.

How might HRIS help?

Utilizing an HRIS allows HR professionals to seamlessly pull data from employee records and have it automatically inputted into necessary benefit enrollment documentation.

If the system in place has integrated carrier connections, then the documents are simply pushed over to the carriers for immediate processing. Aside from assisting with processing, HRIS systems can also help with tracking employee eligibility.

Why should companies consider implementing an HRIS?

HR processes that aren’t managed using such a system could potentially become an administrative nightmare with the upcoming mandates on large employers through the ACA.

Using a system that is sufficient enough to support the increased compliance requirements will ensure that employers are effectively managing their responsibilities and their workforce.

For employers that have a large number of variable hour employees, certain systems have developed the functionality to manage look-back periods and full-time equivalency calculations, taking quite a bit of manual Excel calculation off of the employer’s plate.

What are the penalties for noncompliance?

Failing to file or providing incorrect information to the IRS and failing to provide employee statements can result in a penalty of $100 per statement, not to exceed $1.5 million.

For the first round of reporting due in 2016 only, the IRS will waive such penalties so long as an employer can demonstrate a ‘good faith effort’ to file correctly. There will be no waiver of penalty for failure to file altogether.

Employers should take seriously their reporting obligations under the ACA. The requirements and potential penalties are very real and present, so employers shouldn’t delay putting in place an effective HRIS.

While 2015 will undoubtedly present challenges in terms of ACA compliance and reporting methods, a quality HRIS will prove invaluable and will make compliance infinitely more manageable. ●

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Why knowledge is power in the search for the right benefits plan

The cost of health care has frustrated people from all sides, whether you’re trying to raise a family or lead a business. The good news is that there is a way for companies to track where the money is being spent and use that information to control costs and encourage healthier behavior from their employees.

“The key is an open mind and a willingness to make the investment,” says Ron Filice, president and CEO at Filice Insurance.

Health informatics is a discipline within health care that provides in-depth analysis related to claim utilization, population management, clinical outcomes and formal processes to address health care risk so as to mitigate future exposure. It involves detailed use of public health resources and national benchmarking data to optimize the true view of predictive losses.

Smart Business spoke with Filice about how health informatics can help you provide a better health care plan for your employees.

How does health informatics work?

The goal is to get a better sense of the overall health of your workforce and to use the data you compile to craft a benefits plan that best supports the needs of the group. If you have a group of employees that enjoys opportunities to be physically active, you may find a lot of support for launching wellness initiatives.

With an older workforce, perhaps you focus on health screenings or programs that address health concerns they may be facing. If you have a younger group that includes employees with growing families, options focused on the medical needs of children could become a priority.

When you take an in-depth look at the makeup of your people and begin to understand their unique needs, you can build a program that is more efficient and easier to navigate. By cutting out programs that don’t fit with your company, and working harder on programs that do, you can build a more cost-effective plan.

What is the best way to go about getting the information you need?

Your benefits consultant should take the lead on working with your insurance provider to come up with the best strategy for your company to collect data. Once the data is collected, engage your provider in a comprehensive discussion about the findings and the clinical risk of your health plan. Use their expertise to decipher the clinical language and get a clearer picture of what you can do to help your business.

As an employer, you must also ensure that you use the data you receive properly.   The data received from the carrier is only identified to the clinical team. Employers themselves will never see identified, protected health information data on their employees. This is to support the privacy and sensitivity needs around employees’ personal health records.

It’s important to communicate this message heavily with your employees so that they know that any data that is collected is not shared and is aggregated only to help the employer manage its health plan.

How much time is required to make this work?

This largely depends on your ability to implement an informatics and wellness solution. At minimum, implementation may take six months. While much of the heavy lifting falls on the benefits consultant you work with, you must be engaged to answer any outstanding questions and/or to provide guidance.

Can you provide a case study of how health informatics works?

A food manufacturing company was making the move to become self-insured. The benefits department required greater insight into the true drivers of health care cost, utilization and risk within its employee population. Leaders also needed to understand the financial implications of change and determine the best plan design to be able to predict trends into the future. It turned out that the majority of the employee population was predisposed to diabetes and hypertension and 80 percent of pharmacy utilization was generated by about 20 percent of the population. Of this group, a majority was undergoing treatment for chronic disease without using the most efficient arrangement of services.

Management was able to design a multi-faceted health strategy aimed at increased quality of care without increased costs.

Why employers need to be aware of the changes on the way for Medi-Cal

Expansion of Medi-Cal under the Affordable Care Act (ACA) was expected to generate as many as 2 million new enrollees by the end of 2014. With 1.9 million consumers already registered for the program by the end of March, however, and an additional 900,000 applications pending, the response has been even greater than anticipated.

Medi-Cal is California’s version of Medicaid and has been around since 1966. It was created to provide government sponsored free or low-cost health coverage for California residents who meet eligibility requirements. Effective Jan. 1, 2014, Medi- Cal and Denti-Cal (government sponsored dental care) is available to everyone in California with an income below 138 percent of the federal poverty line.

For children, it is available up to 266 percent of their parents’ federal poverty level, meaning that children may still qualify for the plan, even if their parents do not.

“Some employers may have employees and/or children that qualify for Medi-Cal,” says Ron Filice, president and CEO of Filice Insurance. “This no-cost option can help relieve the employee of the burden of paying employee contributions each month and it can help the employer save money for each employee that chooses not to enroll with the employer sponsored health plan.”

Smart Business spoke with Filice about why employers need to take note of what is happening with Medi-Cal.

How does Medi-Cal work with employer health plans?

Medi-Cal eligibility is based on the income from an individual’s tax return, without consideration of health insurance offered by an employer. So if someone is eligible for Medi-Cal, they have the option to choose

between the employer plan or Medi-Cal. All of the health plans offered by Medi-Cal include the same ‘essential health benefits’ offered under the ACA. Many individuals who enroll in Medi-Cal have no premium, no co-payment and no out-of-pocket costs.

In some cases, households will see affordable costs such as a low monthly premium. The overall intent, however, is to keep the program in line with its original goal of providing coverage for those who couldn’t otherwise afford it.

How are children covered through the Medi- Cal program?

The eligibility rules for Medi-Cal children are different than they are for adults.

They are meant to ensure that no child lacks affordable health care coverage. This makes Medi-Cal a valuable option for low wage-earning employees to consider when evaluating their health insurance options, as well as an important benefit for their company. It also provides peace of mind for an employee worried about ensuring that his or her children will have access to the medical care that they need.

What about dental coverage?

There has been an expansion of Denti-Cal. It offers more services with participating dentists including exams and X-rays, cleanings, fluoride treatments, fillings, front-teeth root canals, crowns, dentures and other essential dental services.

How does Medi-Cal work with Covered California?

Under federal law, if someone is currently enrolled in or eligible for Medi-Cal, that individual is ineligible to purchase subsidized coverage through Covered California. If the person is eligible for Medi-Cal, he or she can still purchase an individual health plan. But these individuals cannot receive premium assistance to reduce the cost and will have to pay the plan’s full premium.

Medi-Cal is health coverage, just like the coverage offered through Covered California. Medi-Cal provides benefits similar to the coverage options available through Covered California, but often at lower or no cost. Depending on the county of enrollment, Medi-Cal enrollees may even have a managed health care plan through a private insurance carrier such as Anthem or Kaiser.

How can employers help employees choose the best option to meet their needs?

The laws regarding who qualifies for a subsidy are confusing. It is in the best interest of an employer to work with a third- party benefits consultant or other expert that can provide an outreach program for their employees.

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What your business needs to stay on top of changes in health care reform

Is the Affordable Care Act (ACA) working?

That may depend on your political point of view, but based strictly on the numbers, it appears to be a success.

About 8 million people have signed up for private insurance in the Health Insurance Marketplace thus far and as of February, another 3 million were enrolled with Medi-Cal, Medicaid and the Children’s Health Insurance Program (CHIP).

Nationwide, up to 129 million Americans with pre-existing conditions — including as many as 17 million children — no longer have to worry about being denied health coverage or being charged higher premiums because of their health status.

In addition, 71 million Americans with private insurance have gained coverage for at least one free preventive health care service such as mammograms, birth control or immunizations.

Smart Business spoke with Ron Filice, president and CEO of Filice Insurance, about progress toward implementing the ACA and what employers need to keep in mind going forward.

What is the employer mandate?

Employers with 50 or more full-time equivalent (FTE) employees are required to offer their employees ‘affordable’ coverage that meets the law’s minimum essential coverage requirements. If they do not and a FTE employee receives a premium tax credit under an exchange, the employer may be subject to the ACA’s shared responsibility penalty.

According to final regulations issued by the U.S. Treasury Department on Feb. 10, employers with at least 50 but fewer than 100 FTE employees will not be required to comply with the employer shared responsibility provision of the ACA until Jan. 1, 2016. Employers with at least 100 FTE employees will be required to comply with this provision beginning Jan. 1, 2015.

What are the four steps that employers need to take to ensure compliance in 2015?

Determine if you are an applicable large employer. Do you ‘reasonably expect’ to employ an average of 100 or more FTE employees during any consecutive six-month period in 2014? A FTE employee is based on a work week of 30 or more hours. Part-time employees are counted by taking their total number of monthly hours worked divided by 120. Proprietors, partners and shareholders should be counted if they also work as an employee.

If you work with seasonal employees or employees with variable hours, your company may meet the safe harbor for variable employees, which can provide you with some cost control. However, it is recommended that you have a good policy in place that specifically outlines who qualifies as a seasonal or variable employee. Consultants can help you write a policy and outline the risks.

Determine your date of compliance. You may be able to delay the mandate until your benefit policy renewal date. There are some rules around this so be sure that you meet the requirements. Also, ensure you have systems in place for required reporting.

As the cost of health insurance continues to rise, what should employers consider to help control or better manage these increases?

If you have a large number of uninsured employees, perform a thorough analysis to gauge what your new cost exposure will be. Work with a consultant that has a strong individual outreach program with Medi-Cal and individual plan enrollment assistance, especially if you have a large population of low-income and/or part-time employees.

Find a consultant that provides in-depth analysis related to claim utilization, population management, clinical outcomes and formal processes to address health care risk so as to mitigate future exposure. This type of analysis will also give you more negotiating power with insurance carriers.

You may also want to consider alternative funding vehicles to maximize your benefit dollars. Keep your employees engaged and educated to reduce overall costs.

Devise a three-year benefits strategy that is aligned with your business objectives. The insurance industry continues to add more components and options to its packages. It’s imperative to get with an experienced benefit consultant that has the bandwidth, expertise and software to provide your company with the services that meet your evolving needs.

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