Armed with information found on the Internet or delivered via direct-to-consumer advertising, today’s health care consumers — your employees — are much savvier than ever before about the options available to them. Whether your company employs 50 people or 50,000, it’s a fair guess to say that many of them would like to see some changes to your health care offering.
Fortunately, there are many new choices you can deliver that will help bring greater value and customized options while containing costs. Known as consumer directed health plans, two of the best-known offerings — health savings accounts (HSAs) and health reimbursement arrangements (HRAs) — aim to make us better health care shoppers by buying services from a pool of funds and trying to conserve those funds as best as possible.
Health savings accounts
A tax-exempt trust or custodial account created exclusively for paying the qualified medical expenses of the account holder, the HSA was created by the Medicare Prescription Drug Improvement and Modernization Act of 2003. The accounts, which must be established with a qualified HSA custodian or trustee, are generally available to any individual who is covered by a qualified high-deductible health plan with very limited first dollar coverage (office visit and prescription co-pay arrangements are not allowed).
HSA contributions must also adhere to these standards.
* Contributions are calculated on a monthly basis.
* Contributions are nonforfeitable.
* Contributions must be made in cash, except for rollover contributions or trustee-to-trustee transfers.
* Contributions are limited, based on the annual deductible amount.
Health reimbursement arrangements
A solely employer-funded account, HRAs reimburse employees for substantiated medical care expenses incurred by the employee and the employee’s spouse and dependents (as defined in IRC Section 152) up to a maximum dollar amount per coverage period. These amounts are excludable from the employee’s gross income under IRC Section 106 and IRC Section 105(b), assuming all requirements for HRAs are met.
In addition, employer contributions to an HRA may not be attributable in any way to salary reductions. Thus, the HRA cannot be offered under a cafeteria plan, but it can be offered in conjunction with a cafeteria plan.
Ultimately, the decision to use either an HSA or an HRA depends on many factors within your organization, such as corporate culture and average age of employment force.
Tom Colvin is an employee benefits expert with more than 30 years of experience and has spent the past decade with Schiff, Kreidler-Shell as a vice president and manager of the agency’s Benefit and Financial Services Department. He is a graduate of the University of Cincinnati and Northern Kentucky University’s Chase College of Law. Reach him at (513) 474-5151.
