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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Ruth Marcott
August-September 2015

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Benefits

The implementation of the Affordable Care Act has caused many employers to rethink the structure and type of health benefits they provide.

In an effort to create incentives for employees to make smart health decisions while also keeping costs down, organizations are taking a closer look at the options available through consumer-driven health plans like Health Reimbursement Accounts (HRAs) and Health Savings Accounts (HSAs).

Recent studies by the Employee Benefit Research Institute show that HSA and HRA programs are very popular. The plans hold billions of dollars of assets, and have growing balances that carry forward to future years.

Thirty percent of larger employers are expected to offer an HSA-eligible health plan or HRA as the only plan option by the end of 2015, according to the institute.

While HSAs have increased in popularity since the enactment of the ACA due to additional regulatory requirements imposed on HRA programs, both HSA and HRA programs offer opportunities for employers who provide health benefits.

Two definitions

An HRA is an employer-funded arrangement that reimburses medical expenses and health insurance premiums.

An HRA has the following attributes:

  • No employee contributions.
  • All employer contributions.
  • Unused dollars in an HRA account may carry forward to be used in future years. The terms of such use and vesting are set by the employer.
  • When an employee terminates employment, the HRA account forfeits back to the employer.

An HSA is a custodial account (like an IRA) funded by contributions while an employee is enrolled in a high deductible health plan to be used to pay qualified medical expenses.

An HSA has the following attributes:

  • Contributions to an HSA may be made by the employee, the employer or both, up to certain limits set by law.
  • The employee must be enrolled in a high deductible health plan at the time contributions are made to the HSA.
  • HSAs reimburse current or future medical expenses of the employee. Only limited types of health premiums are reimbursable.
  • HSA accounts carry forward to be used in future years.
  • The employee owns the HSA. If the employee terminates employment, the HSA account belongs to the employee.
  • Once the employee reaches age 65, the employee may also use the HSA for taxable retirement income.

Key differences

There are several differences between HRA and HSA accounts. For instance, funds in HRA accounts forfeit back to an employer when an employee terminates employment; dollars in HSA accounts belong to the employee, even if the employee terminates employment.

In addition, enrollment in a high deductible health plan is not necessary for an HRA account contribution, while it is necessary for an HSA contribution. HRA accounts may be integrated with many types of health plans, including a high deductible plan.

Also, in an HRA, the employer has flexibility in designing and drafting specific terms governing the HRA, such as the amount of HRA funds that will roll forward, terms for vesting, and types of medical expenses that may be reimbursed.

Because HSA rules and terms are established by the Internal Revenue Code and related authority, the employer does not have much flexibility in design, other than selecting the high deductible health plan and determining contribution amounts.

HSAs are always coupled with a high deductible health plan, which costs less in monthly premiums than a health plan with a lower deductible.

For 2015, the IRS has defined a high deductible health plan as having a minimum deductible of $1,300 single/$2,600 family and out-of-pocket maximums of $6,450 single/$12,900 family.

HRAs are not required to be coupled with a high deductible health plan, but often are paired with a lower-cost health plan option.

If an employer offers several tiers of health coverage, they will often offer an HRA for participation in the cheaper health plan option. This saves both the employer and the employee premium costs.

With HSAs or HRAs, employees are more vested in their medical spending decisions and want the best medical care at the cheapest cost, because it comes out of their own pocket—that is, out of their HRA or HSA account.

If the employee elects certain medical care, the HRA or HSA account is available to pay for out-of-pocket medical expenses. If the employee decides to forego a medical option or use a cheaper alternative, the saved amount carries forward in the employee’s HRA or HSA account.

Both HSAs and HRAs offer a tax benefit. Medical expenses covered under the health plan are tax-free to the employee and employer contributions are deductible.

ACA impact

Prior to the ACA, HRAs were the most flexible plan design, because HRA accounts did not have to be coupled with a health plan for a contribution to occur. The ACA now requires a general purpose HRA to be integrated with a health plan.

If the general purpose HRA is not integrated with a health plan, it is treated as a non-compliant health plan and will subject the employer to significant penalties. Therefore, all existing HRAs should be examined to determine if they comply with these new integration rules.

The ACA rules have led some employers to stop using their HRA programs because the employers offered the HRA program without requiring participation in a health plan.

Terminating an HRA program is not required under the ACA; the HRA program need only be made compliant under the law.

HSAs were left relatively unscathed by the ACA, and were approved as providing an affordable health plan option when coupled with a high deductible health plan.

However penalties increased for employees making improper contributions to an HSA or taking improper distributions from an HSA.

The rules on HRAs and HSAs, particularly if they are used together or in conjunction with other types of benefit plan accounts, are complex and require careful consideration. The IRS has rules governing the order of reimbursements from these plans.

In the end, employers should carefully consider the differences between HRA and HSA health plan designs to hold down costs and to provide health benefits with savings incentives for their employees.