Employers are finding that promoting individual responsibility is the long term solution to controlling escalating health care costs. With Consumer driven plans such as High Deductible Health Plans, Health Savings Accounts and Health Reimbursement Accounts this can be accomplished.
HSA Accounts
A health savings account (HSA, is a tax-advantaged medical savings account available to taxpayers who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit. Unlike a flexible spending account (FSA), funds roll over and accumulate year to year if not spent. HSAs are owned by the individual and the funds may currently be used to pay for qualified medical expenses at any time without federal tax liability or penalty. However, beginning in early 2011 you will no longer be able to pay for over the counter medications with HSA dollars (Sec. 9003 of H.R. 3590). Withdrawals for non-medical expenses are treated very similarly to those in an IRA in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier.
HSAs have three major tax savings: the money contributed into the account is tax deductible, it grows tax free, and certain withdrawals are tax free if they are for qualified medical expenses. To qualify for an HSA account, you must have coverage from a high-deductible health plan and you must not be enrolled in Medicare or be listed as a dependent on another person's tax return.
Section 105 HRA's: Encourage reponsible use of health care dollars
Employer Benefits
- Employer funded only.
- Only medical expenses may be paid with HRA funds.
- No withdrawals for any purpose other than qualified medical reimbursement expenses.
- Employers benefit by reducing healthcare insurance costs and restructuring health benefits outside their group health insurance premiums.
- HRAs allow employers to offer a high deductible plan and allocate the savings to the HRA for future employee-directed healthcare.
- HRAs allow employers to redefine employer-employee healthcare financing and responsibility.
- The plan document may segregate eligible expenses for reimbursement under the health FSA or HRA. For instance, a plan may exclude the HRA from reimbursing dental expenses, making such expenses eligible only under the health FSA.
Employee Benefits
- Employer funded only.
- Protection against catastrophic medical costs.
- A method for paying first dollar health care expenses.
- Employees can carry over unused amounts (no "use-it-or-lose-it" rule), unlike FSA's.
- HRAs permit the employee to accumulate money for future healthcare needs such as retirement healthcare expenses.
- Can be used in conjunction with an FSA however the plan documents must dictate the order in which expenses are reimbursed. Some employers may want the HRA to pay first; others will want it to pay last.
High Deductible Health Plans
A High Deductible Health Plan (HDHP) is a new health plan product, when combined with a Health Savings Account (HSA) provides insurance coverage and a tax-advantaged way to help save for future medical expenses. HDHPs have a higher annual deductible than traditional health plans. For 2010, an HDHP in the FEHB Program has a minimum annual deductible of $1,200 for Self Only coverage and $2,400 for Self and Family coverage (the deductible amount is indexed every year). The HDHP/HSA gives you greater flexibility and discretion over how you use your health care dollars. HDHPs allow for lower monthly premiums, while continuing to provide major medical coverage and basic preventative care.
