BY: Rodger A. Bayne
President, Benefit Indemnity Corporation
Phone: 443-275-7412
Email: rodger.bayne@benefitindemnity.co
Health plan design continues to evolve as employers look for ways to balance affordability, flexibility, and meaningful employee benefits. One approach that has remained relevant—and is now often paired with more advanced funding strategies—is the Health Reimbursement Arrangement (HRA). More recently, discussions around "stacked" or layered self-funded designs have expanded how HRAs are used in modern plan structures.
This overview breaks down what HRAs are, how they function, and how they may fit into broader self-funded plan strategies.
What is an HRA?
A Health Reimbursement Arrangement (HRA) is an employer-funded benefit that reimburses employees for eligible medical expenses.
First formally defined by the IRS in 2002, HRAs are considered tax-advantaged arrangements where:
- Employers set aside funds to reimburse qualified medical expenses
- Employees are not taxed on eligible reimbursements
- Employers generally receive tax deductions for qualified reimbursements
- Unused funds may, depending on plan design, roll over for future use
Importantly, HRAs are fully employer-funded. Employees do not contribute to the reimbursement account.
HRAs are governed by IRS rules, including nondiscrimination requirements and other plan compliance standards designed to ensure fair access across employee groups.
How HRAs Are Commonly Used
In many cases, HRAs are paired with high-deductible health plans (HDHPs).
This structure typically works like this:
This structure typically works like this:
- Employers select a lower-premium medical plan with a higher deductible
- The premium savings are partially redirected into an HRA fund
- Employees use HRA dollars to help offset deductible or out-of-pocket costs
This approach can shift how healthcare dollars are allocated without necessarily reducing the richness of coverage.
Why employers use this structure
HRAs are often used to:
- Offset the cost of higher deductibles for employees
- Reduce overall premium spending
- Increase predictability in healthcare budgeting
- Maintain competitive employee benefits while controlling costs
When designed effectively, employers may be able to offer comparable benefits to traditional plans at a lower overall cost structure.
Behavioral and Financial Impact
One additional aspect of HRAs is their influence on how employees engage with healthcare spending.
Because reimbursement funds are defined and visible, employees may:
- Become more cost-aware in their healthcare decisions
- Seek to manage spending within available benefit dollars
- Better understand the value of plan utilization
From an employer perspective, this increased visibility can sometimes contribute to more efficient utilization patterns over time.
What Does "Stacking" Mean in Self-Funded Plan Design?
More recently, HRAs and self-funded plans are being discussed in the context of "stacked" plan designs. In simple terms, stacking refers to layering multiple funding or savings mechanisms within a single benefits strategy.
A typical concept of a stacked approach might include:
- A self-funded medical plan (base layer of claims funding)
- An HRA or reimbursement layer (secondary support for employee costs)
- Additional plan design features that help manage risk or stabilize costs
The goal is not complexity for its own sake, but rather creating multiple "levers" within a plan that can help manage different parts of healthcare spending.
What Are "Double-Stacked" Savings?
The idea of "double-stacked" savings comes from combining two distinct cost-saving mechanisms:
- Primary savings from plan structure
- For example, shifting from fully insured to self-funded arrangements
- Or selecting plan designs that reduce fixed premium costs
- Secondary savings through reimbursement or funding strategy
- Such as an HRA helping offset employee out-of-pocket exposure
- Or unused funds remaining within employer-controlled design parameters
When structured carefully, these layers can work together—one reducing baseline costs, the other optimizing how remaining healthcare dollars are allocated.
Key Considerations for Employers and Brokers
While stacked and HRA-based strategies can offer flexibility, they also require thoughtful design. Important considerations include:
- Employee communication and understanding of benefit structure
- Compliance with IRS and healthcare regulations
- Appropriate alignment between deductible levels and reimbursement funding
- Long-term sustainability of funding assumptions
- Integration with stop-loss or other risk protection tools in self-funded environments
Not every employer will benefit from a layered approach, but understanding how these components interact is increasingly important in modern benefits planning.
Final Thoughts
HRAs remain a foundational tool in employer-sponsored benefits design, particularly when paired with high-deductible or self-funded arrangements. As plan strategies become more sophisticated, layering—or "stacking"—different funding mechanisms has emerged as a way to balance cost control with employee support.
For brokers and employers alike, the key takeaway is not necessarily to adopt any one structure, but to understand how different plan components can interact to create more efficient and sustainable benefit designs.
 | Rodger A. Bayne President, Benefit Indemnity Corporation Phone: 443-275-7412 Email: rodger.bayne@benefitindemnity.co |
