HRA Savings May Be Negated

March 12, 2004 ( - Health reimbursement arrangements (HRAs) can result in lower health care spending, but only if the plan changes employee behavior.

Health-care specialist Paul Fronstin, a senior research associate with the Employee Benefit Research Institute (EBRI), told the Self-Insurance Institute of America that the potential savings an HRA produces might be offset by increased demand for health care services by otherwise healthy individuals, Thompson Publishing Group reports.

This is due to the nature of an HRA. Fronstin points out that an HRA is essentially a high-deductible health plan, in which the company establishes, and funds, a personal account for the employee. Once that account is exhausted, the employee pays the deductible and traditional insurance then kicks in. Under this system, some employees might be tempted to spend money on health care that they otherwise would not spend if they were paying out of pocket.

When applied to the aggregate, Fronstin points to the potential impact the increased spending would have on half of the population that only accounts for 5% of total health-care spending. Additionally, the potential savings is small for the “middle of the distribution,” a group comprised of 20% to 30% of the population that pays between $1,000 and $3,000 for health-care each year. For the largest share of the health care cost pie – the chronically ill population that accounts for 80% of the spending – savings would only depend on whether having an HRA influences their health-care decisions.