California Companies and Brokers Tussle Over HRAs in Consumer Plans

A dispute between health insurance companies in California and brokers could end a practice favored by small employers to save money on health coverage.

The feud centers on employers’ funding of health reimbursement arrangements with high-deductible health plans. Normally, high-deductible plans are used with health savings accounts, which are owned by employees and often partially funded by the employer to help defray an employee’s health care costs.

Health reimbursement arrangements, on the other hand, are like accounts but are managed and owned by the employer rather than the individual. Instead of depositing a lump sum of cash into an individual’s health savings account, employers simply pay for health care claims as they occur. Employers save money if an employee does not use the full amount offered by an employer in the HRA.

But health insurers in California say the practice, which is being sold by brokers to employers as a way to cut costs, undermines the way they’ve priced high-deductible health plans, essentially turning them into inexpensive low-deductible plans.

In a letter to brokers, Health Net of California wrote: “Key to our ability to provide these plans is the principle that higher deductibles and out-of-pocket maximums will encourage members to be more aware of and cautious in their utilizations of services.”

Beginning in March 2006, Health Net said it would not pay brokers a commission if an employer offered health reimbursement arrangements with high-deductible plans intended to be used with health savings accounts. Health Net then asked employers to sign an “Employer Acknowledgement Form” promising, in effect, not to use HRAs.

Other insurers, including Kaiser Permanente and Blue Shield of California, have sent similar warnings to brokers, according to letters sent by health insurers to brokers and reviewed by Workforce Management. The plans generally affect employers covering as many as 500 people, though some of the plans are specifically targeted to employers with as few as 50 employees.

The CEO of the state’s health insurance advocacy group says health plans can offer high-deductible plans with lower premiums because they encourage members to spend less on health care. Chris Ohman, CEO of the California Association of Health Plans, says insurers are concerned that HRAs with these plans will upset that balance, causing utilization—and premiums—to go up. Although insurers say such a scenario has not occurred, their efforts to penalize brokers for selling HRAs, known generally as wraparound products, are meant to keep HSA plans affordable.

“These wraparound schemes run the risk of destroying these premium products,” Ohman said. “It’s not sustainable, it’s not appropriate, and it’s not fair.”

Brokers say this is a way for health insurance companies to protect their margins at the expense of employers.

“The insurance carriers are hard-nosed because they feel they could be losing revenue,” said Linda Jacobs, a broker in Campbell, California. “It’s a disservice to employers because the HRA is a better buy, so they’ve had to comply with what the health insurance carrier wants, not with what’s best for their company.”

Raj Singh, a broker with Expert Quote in San Jose, California, says he sells the plans to remain competitive because he knows employers are looking for ways to save money. But the conflict has sown confusion among employers and brokers about whether the practice is legitimate.

Mark Reynolds, president of Visalia, California-based health benefits administrator Benelect, says insurers are violating state insurance law by keeping brokers from performing their fiduciary duty to employers.

Molly DeFrank, a spokeswoman for the state’s insurance commissioner, said California is “reviewing the issue,” but that the practice is not common.

Health insurers say employers who want to offer HRAs should purchase high-deductible plans that are meant to be used with them.

As Blue Cross of California told brokers in a May letter, it “is the only plan appropriately priced” to reflect the increased spending the insurer believes will occur when employers offset the cost of a high-deductible plan with an HRA.

—By Jeremy Smerd

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