Kiplinger has a brief article that highlights some of the many advantages of HRAs (health reimbursement arrangements).

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Look
for more employers and workers to go for health reimbursement
arrangements (HRAs) to replace traditional retiree health care benefits.
HRAs are funded entirely by the employer. Money in the accounts is
never taxed — it accumulates tax free. Distributions are also tax
free, as long as they are used to pay for qualified medical expenses.

Employers like HRAs because they offer a flexible middle ground.
While many companies have moved in recent years to eliminate retiree
health coverage altogether, others are looking for a way to retain some
kind of benefit, which can be a powerful recruiting and retention tool.
HRAs may be the answer for companies that don’t want an open-ended
commitment. “Employers want predictability and control over their
costs,” says Rick McGill of Hewitt Associates, a benefits consulting
firm.

Another attraction for employers is that HRAs are notional accounts,
which means that employers don’t incur any expenses until a retiree has
a claim, says David Speier, a consultant with Watson Wyatt Worldwide.
That’s a big bookkeeping aid. And it has advantages over the other
popular method of controlling costs, which is to put caps on premium
contributions for retiree health care. Of firms that still provide
retiree medical coverage, about half have instituted limits on what
they will spend per retiree, according to a survey by the Kaiser Family
Foundation. And of those, about 60% have reached their caps, which
means that retirees pay a bigger share of the premiums as time goes on.
In the next three years, an additional 23% of firms will hit their caps.

Employers may choose to put lump sums in HRAs at retirement or make
annual contributions to these accounts either during or after
retirement. Because employers have control over vesting and payout
rules with an HRA, they may allow an active worker’s HRA, with
accumulated funds, to carry over into his or her retirement.

HRAs provide flexibility to retirees as well. For example,
some retirees may choose to use the money to pay for medical coverage
until age 65, when Medicare kicks in. Any funds left over could then be
used to pay for a Medicare supplemental insurance plan and Medicare
Part D drug coverage. Retirees with coverage through their spouses can
let their HRA funds sit and grow, not tapping them until they both join
the ranks of the retired.

Topics: Health Reimbursement Arrangements (Section 105) |

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