Guide To Health Insurance.org

Health Reimbursement Arrangements (HRAs) have been developed so that larger employers (more than 50 employees) who are not allowed to offer a true MSA can offer their employees something like an MSA. A HRA is a tax-exempt account that an employee uses to pay health care bills. However, unlike a true MSA, money in a HRA is never really paid to the employee. The money remains with the employer. The employee just directs how the HRA money is used. An employee cannot withdraw cash from a HRA.
On July 26, 2002 the U.S. Treasury Department and the U.S. Internal Revenue Service issued guidance that clarified the tax treatment of HRAs ustreas.gov/press/releases/po3204.HTM. They announced that qualified Health Reimbursement Arrangements (HRAs) are not taxable; HRA funds are not lost if unspent by the end of the year; and an employee can use the funds for health care after leaving the employer. In order to qualify, an HRA must be: funded only by an employer; and provide benefits only for substantiated medical expenses. This guidance encourages employers to adopt health plans with patient-directed features. It will probably spur rapid growth in HRAs for employees of larger employers in 2003-2004.

Views on HRAs are similar to those on MSAs. Advocates of HRAs believe that these accounts can: return control of the patient-provider relationship to the patient and provider; control costs; reduce transaction costs; and ultimately improve quality of care. Opponents are concerned that employers will use them to cut back on employee benefits, leaving employees in the lurch, and that selection dynamics will leave the chronically ill in traditional health insurance with skyrocketing premiums.

Some ebenefits firms (such as Definity Health, Destiny Health, Lumenos, HealthMarket, and MyHealthBank) are working on services to address these concerns. They are creating online markets where plans and providers post prices, consumers get information on plans and providers, consumers pool their purchasing clout, and potentially-complex plan/provider selection decisions are simplified. They are also working on methods of risk-adjusting capitation payments based on age, gender, geography and health status -- enabling multiple plan choice for smaller employers without adverse selection problems. Opponents say that quality information and risk-adjustment methods are still rudimentary, but advocates expect rapid refinement as use of these services expands.