Similar to the HSA concept, Health Reimbursement Arrangements give a Vermont employer more control over funds allocated to participating employees' accounts and the ability to select the types of medical services and products that are eligible for reimbursement. In addition, the employer determines the dollar amount or percentage of the employees' untapped funds that can be carried over to the next plan year. Each of these guidelines needs to be spelled out in the plan document, a requirement of an HRA plan (unlike an HSA plan where the accounts are owned by each participating employee).

The mechanics of the plan are quite simple. The employer selects a high deductible medical plan, thus realizing a significantly lower premium. Personal care accounts are established and funds allocated by the employer in the name of each eligible and participating employee. The amount must be allocated in a non-discriminatory fashion usually based upon each employee's level of coverage (i.e. single, two-person or family), either in a lump sum or periodic deposits throughout the year. At no time is the employer obligated to advance funds on behalf of a participant in excess of that available in his/her account, unlike a flexible spending account (FSA).

This HRA money can be used exclusively for medical expenses not reimbursed by the medical or other insurance plan (such as dental or vision) and for such other qualified medical expenses specified by the employer. The annual amount deposited into these personal care accounts is typically sufficient to cover an individual's or family's annual healthcare expenses, but less than the health insurance annual deductible, thus creating a gap which the employee is responsible for satisfying were covered expenses to be unusually large in a given year. As an incentive for participants to be wise consumers of healthcare, these savings plans allow prudent shoppers - and those fortunate enough to remain healthy - to roll over all or a portion of the unused funds in their account to apply toward future years' healthcare expenses. The other advantage of this concept is that the HRA accounts can be used in conjunction with traditional HMO as well as partially self-insured medical plans.

Like other consumer-driven health plans, the patient tends to take a greater interest in his/her health care decisions and hopefully in seeking less expensive options for treatment. The advantages of such plans to both the employer and the employee far out-weigh the disadvantages:

1. Both the employer and the employee are likely to experience long-term and perhaps even short-term savings through the selection of a high deductible PPO or HMO plan or partially self-insured medical plan coupled with participant accounts to cover typical first-dollar costs.

2. Lower participant utilization as employees and their spouses are encouraged to have a dialogue with their providers about necessity and cost of certain diagnostic tests, recommended procedures or treatments and to inquire about alternatives to high cost brand-name medications. Educated, empowered and motivated, consumers now have an incentive to be assertively inquisitive.

3. The likelihood of lower premium increases at renewal due to trends that would suggest reduced utilization and fewer claims reaching the plan deductible.

4. Greater employee satisfaction with the employer-sponsored health plan, because of the wide range of qualified medical expenses eligible for reimbursement: dental fees, vision exams and corrective eyewear, over-the-counter remedies and homeopathic medical services, depending on which services and products the employer elects to include as covered benefits.

5. Motivated by the possibility of building up their health care account, some employees may be inclined to alter risky behaviors such as sedentary lifestyles, poor diets, obesity, heavy smoking or drinking, dangerous activities, etc.

6. The employer has flexibility in deciding the incremental and total amount it will commit to each participating employee's personal care account. Should an employee's claims exceed the employer's funding amount year-to-date, the employer cannot make advances to that account unless it is prepared to do so for participating employees.

7. Unlike Flexible Spending Accounts, employees are able carry over all or some portion of unspent funds remaining in their account at the end of the plan year to apply toward the next year's medical expenses, in accordance with the amount the employer allows to be carried over..

8. The employer does not physically place funds into each participant's personal care account with each passing month during the plan year, but instead reimburses qualified medical expenses (defined by the employer in the plan document) as they are presented for payment or reimbursement. The employer does have a fiduciary responsibility to pay covered claims up to the total annual amount it committed to for each employee and covered dependent as set forth in the plan document.