"HRA" is an abbreviation for Health Reimbursement Arrangement. An HRA is an employer sponsored benefit, allowable under Section 105 of the Internal Revenue Code, whereby an employer can set aside funds on a pre-tax basis to be used to reimburse employees for various health expenses on a tax-free basis. The specific expenses deemed reimbursable are stated within Section 213(d) of the Internal Revenue Code. The practical application is that installing an HRA through TPA Systems Inc. will significantly reduce an employer’s overall employee health care costs in almost all cases, by “dovetailing” the HRA in combination with a high deductible health plan. That’s why we call our HRA “The Dovetail Plan”.
Here is an example of how an employer can calculate his premium savings with a Dovetail Plan.
1. The employer compares his total current health insurance costs against what his cost would be with a higher deductible (as an example, we'll assume he raises his deductible by $2,000).
2. The employer calculates how much it will cost to "make good" (fund) on the $2,000 of additional financial exposure that he has created for each of his covered employees and dependents. The employer then installs an HRA to fund this value on an ongoing basis every month. (Hint: this cost can be calculated with a high degree of precision, and will be dramatically lower than the $2,000 promised.)
3. The employer adds the monthly cost of his newly designed health plan and the cost of funding the claims and administration fees of his HRA together, and compares that sum against what his health plan was costing him before implementing the plan changes.
The results? In almost every case, the employer saves money. In many cases, the employer saves 15%. We have some cases in which the employer saved more than 25%!
The employees and dependents of this group are now covered under two separate benefits: one administered by the insurance company, and one administered by TPA Systems Inc. (TPAS). However, the value of the two benefits together often exceeds the value of the previous, more expensive health plan!
Covered individuals now possess two ID cards - one for each set of benefits. If the employer wants to reimburse expenses on a first-dollar basis, TPAS can provide covered individuals with a pre-programmed, "smart" debit card. These debit cards will only permit the covered person to apply available benefits to expenses approved by the employer. Employers need not worry about employees using the debit card funds to make inapplicable purchases! However, if the employer desires that covered individuals sustain out of pocket expenses before any reimbursements are made, TPAS can administer reimbursements after the fact according to almost any reimbursement schedule that the employer can design. To ensure that the employer is fulfilling his obligation with as few dollars as possible, TPAS can reimburse against an explanation of benefits from the health insurance company, provided by the covered individual.
HRAs are a GREAT way for employers to save money on health care costs!