Employee Benefits

Consumer-Driven Health Plans

You've heard the buzz. You've seen the hype. Consumer-driven health plans may lower costs, change behavior, and save money. The goal is to give consumers "skin in the game" when it comes to allocation of their healthcare dollars. Sounds good but complicated. It might be do-able for a national employer, but could seem out of reach for the small and mid-sized business. Not true. As technology has simplified most other facets of our daily lives, technology has simplified the management of employee benefits.

Below we discuss the three most common forms of consumer-driven plan formats These are fast becoming the critical component to any employer seeking control of current and future benefit costs. Let Resource Group design a plan which makes the most sense for your company.

 



 

 

Health Savings Accounts

What is a Health Savings Account (HSA)?

A Health Savings Account (HSA) is a tax-advantaged account participants can use to pay for qualified health expenses they incur while covered under a high deductible medical plan. HSA dollars, contributed by the employer, employee or a qualified family member, accumulate over time with interest or investment earnings, are tax-free, are portable after employment and can be used to pay for qualified health expenses tax-free, or for non-health expenses on a taxable basis.

Who is eligible to participate in a Health Savings Account?

An eligible individual:

  • Is an individual covered by a High Deductible Health Plan.
  • Is not covered by any other medical plan that is not a high-deductible (e.g., on a spouse's plan, except for vision or dental coverage).
  • Is not entitled to benefits under Medicare.
  • May not be claimed as a dependent on another person's tax return.

What is a High Deductible Health Plan (HDHP)?

To participate in an HSA you must have an HSA-qualified High Deductible Health Plan.

Although the amounts are adjusted yearly for inflation, in 2017, Federal law defines this as a plan that:
  • Has a deductible of at least $1,300 for an individual and $2,600 for a family.
  • The maximum annual out-of-pocket expenses under the plan (including deductibles, co-pays, and co-insurance) cannot exceed $6,550 for an individual and $13,100 for a family.
  • The 2017 contribution limit for an individual is $3,400 annually, and for a family is $6,750.
  • Persons aged 55 and over are entitled to an additional annual catch-up contribution of $1,000.

For more information on government regulations of HSAs, go to http://www.treasury.gov/resource-center/tax-policy/Pages/Health-Savings-Accounts.aspx

What are the advantages to a participant enrolled in a Health Savings Account?
  • Tax Advantages - An HSA provides you with tax deductions when you contribute to your account, tax-free earnings from an interest-bearing account, and tax-free withdrawals for qualified medical expenses.
  • Savings - you can save the money in your account for future medical expenses and grow your account through investment earnings.
  • Portability - Accounts are completely portable, meaning you can keep your HSA even if you change jobs, change medical coverage, become unemployed, move to another state, or change your marital status.
  • Ownership - Funds stay in the account from year to year, just like an IRA. There are no "use it or lose it" rules for HSAs.

What should employers consider when offering a Health Savings Account?

Employers should carefully weigh all consumer plan options and choose one (or more) to best fit their needs. HSAs give individuals the opportunity to plan for future health expenses. They provide options to support retiree benefit strategies and/or the needs of employers interested in portability of coverage. The tax advantages of the accounts are valuable to both employer and employee.

Employers should carefully consider the following about HSAs:
  • The individual immediately owns the money contributed to the account; there is no vesting.
  • The HSA funds are portable upon termination of employment.
  • Employers do not control how the money is used.
  • Qualified health expenses include all services listed under IRS Section 213(d) (except for premiums paid for health coverage), the same section governing FSA coverage.
  • Employees can choose to use their funds for non-qualified health expenses; however, the funds are subject to tax, except following disability, Medicare eligibility or death.

 

 

 


Health Reimbursement Arrangement

What is a Health Reimbursement Arrangement (HRA)?

Health Reimbursement Arrangements (HRAs) are IRS approved tax-favored accounts that are 100% employer-funded and set up for the purpose of reimbursing employees for qualified medical expenses. HRAs are used in combination with a High Deductible Health Plan - the employer chooses a health plan with a high deductible, thereby slashing premiums and creating real savings, and then sets up an HRA to help cover the deductible costs. The idea is that the HRA contributions will be funded using the savings gained from the lower premium cost, and will thus enable the employer to fund the HRA, which will then be used to reimburse employees for covered medical expenses.

How does an HRA work?

The following link will take you to a short and very informative video that clearly explains the mechanisms of an HRA: http://www.healthconnectsystems.com/hcs/HRAERVideo.aspx

What are the advantages of a Health Reimbursement Arrangement?

  • Lower health insurance premiums.
  • HRA money remains with the employer if an employee changes jobs.
  • Preventative visits are typically covered by the health plan, so these will not deplete the employer's HRA fund.
  • Unused funds can be carried over to the following year to cover future health care expenses, giving employees incentive to use their HRA wisely.
  • All employer contributions to the HRA are 100% tax deductible to the employer, and tax-free to the employee.

 

 

 

 

Flexible Spending Accounts

What is a Flexible Spending Account (FSA)?

Flexible Spending Accounts are employee-funded accounts, set up by the employer, which allows the employee to contribute a portion of their earnings to pay for qualified expenses. These accounts are allowed under section 125 of the Internal Revenue Code and are also called "125 plans" or "cafeteria plans." The employee contributes funds to the FSA through a salary reduction agreement and is able to use the funds for medical bills or dependent care, depending on the type of FSA. The money deducted from the employee's salary and put into the FSA is not subject to payroll taxes, resulting in substantial payroll tax savings.

Types of Flexible Spending Accounts

There are two common types of FSAs - a medical expense FSA and a dependent care FSA.

  • Medical Expense FSA - used to pay for medical expenses not covered by insurance - usually deductibles and co-payments, but may also pay for other expenses not typically covered by insurance, such as dental, vision and over-the-counter items (but only if you get a letter of medical necessity from your doctor, or a note on a prescription pad for an Rx item).
  • Dependent Care FSA - used to help pay for expenses related to the care of a dependent who lives with you while you are at work. While this most commonly refers to child care, it can also be used for adult day care for senior citizen dependents who live with you.

 

 

 

 

 

Important Note - The information on this site is general in nature. Any description of coverage is necessarily simplified. Whether a particular loss is covered depends on the specific facts and the provisions, exclusions and limits of the actual policy. Nothing on this site alters the terms or conditions of any policies. You should read the policy for a complete description of coverage. Coverage options, limits, discounts and deductibles are subject to availability and to individuals meeting underwriting criteria. Not all features available in all areas.