Plan could help people take charge of their care
The recent approval of employer-funded Healthcare Reimbursement Accounts (HRAs) by the U.S. Department of Treasury will give employers and employees more flexibility in health care coverage and may actually make the case manager’s job easier, says Bonnie Whyte, CSCI, spokeswoman for the Employers Council on Flexible Compensation, a trade association based in Washington, DC.
HRAs, also known as defined contributions to health care or flexible spending accounts, allow the employers to fund personal accounts that can be used to reimburse workers for out-of-pocket medical expenses, including premiums and deductibles.
Under the guidelines issued by the Internal Revenue Service in June, employees do not have to pay tax on the HRA contributions by their employers, and the money can carry over from year to year if it isn’t spent.
Until the recent IRS ruling, the only flexible spending accounts allowed expired after one year if the money wasn’t spent. As a result, at the end of the year, employees often bought extra pairs of eyeglasses or arranged for various tests and procedures that were not necessarily the most efficient use of health care funds, Whyte says.
Here’s how the HRAs work: An employer chooses a health insurance plan with a high deductible and puts a certain amount of money in an HRA for each employee covered by the policy. The employee can use that money for any expenses not covered by his or her health insurance plan. It could be used for the copay, the deductible, or to go to an out-of-plan physician. HRA funds can even be spent on long-term care insurance, Whyte says.
"The only things people can’t do with their HRA is to cash it out," she adds.
When money isn’t used in one year, it can accumulate and be available down the road if the employee incurs significant medical expenses, she says.
HRAs could significantly improve the case manager’s job, particularly in dealing with chronically ill patients, because what the patient does will affect their pocketbook, and although the money is available, it benefits them not to spend it, Whyte says.
"When people see that the money is coming out of their pocket, they are going to realize that medical care is not free. They are going to be more interested in keeping their diabetes under control or doing their physical therapy exercises at home instead of going for an extra session, because what they spend today will affect the money that could be carried over into future years," she explains.
Whyte doesn’t see much change in how catastrophic injuries or illnesses will be handled or how their cost will be affected.
"But when it comes to day-to-day chronic care, people are likely to be far more interested in having the proper care than they might have been under first-dollar coverage," she says.
"Assuming that they’ve saved up money over time, the money can pay for some of the oddball problems they run into that may not be covered," she adds.
Employers will be likely to embrace the new HRA plans as a way to deal with the increasing costs of insurance premiums, the experts agree.
"Many employers are attracted to these plans because they offer a break with past practices and take a step toward making employees more responsible for their own health care decisions," says Helen Darling, president of the Washington Business Group on Health.
Will the move to "defined contribution" to health benefits keep medical care costs from soaring? The experts disagree.
HRAs can help reduce costs
Research by Watson Wyatt Worldwide and the Washington Business Group on Health Institute on Health Care Costs and Solutions indicate that the HRAs can successfully reduce both short-term and long-term costs.
On the other hand, a new report by the Employee Benefit Research Institute (EBRI) concluded that the ability to control costs would be limited. The reasons:
- Technological innovations in health care account for between 49% and 65% of increases in health spending, while the comprehensiveness of insurance accounts for 10%-13%.
- While consumer-driven health benefit approaches may result in more efficient spending, overall costs may not go down since the majority of health care expenses are incurred by a small percentage of those covered. For instance, 10% of the adult population with employment-based health insurance accounted for 58% of all health care spending in 1998.
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