More than 25 years ago, Charles P.
Hall, Jr., professor of health administration, insurance and risk, Temple University, wrote that the severe
and continuing escalation of health care
costs during the previous decade was a
matter of growing concern to virtually all
segments of society. This caused great
financial hardship to employers who provided health insurance benefit plans. These
words still ring true today. Managing health
care costs is a common concern all employers share. Providing employee health care
benefits is becoming more complex and
financially vital than ever before.
Employers of all sizes continually search
for innovative products that will allow them
to manage their health care costs while providing value to their employees. Gone are
the days of simply providing a health plan
for employees and letting them worry
about how to use it. Today, many employers
are turning to a new trend in providing
employee health care benefits: consumer-driven health care plans.
These employer-sponsored benefit programs aim to educate employees about true
costs of medical services with the goal of
holding employees more responsible for
medical care purchase decisions. These
consumerism plans require a more educated patient, who, in theory, will become
more financially responsible for the real
costs of health care services.
Employers who offer these plans hope
that better, more efficient use of health care
services on the part of their employees will
create a downward shift in both demand
and cost of health care over time.
The consumer-driven movement relies
upon the introduction of a wide spectrum of
elements that will encourage employees to
assume a greater role in managing their
health and associated costs. Consumer-driven health plans require a variety of components including coverage for preventive
care services, wellness and disease management programs and provider cost and quality information, all of which provide employees with the tools they need to make the
most beneficial, value-driven choices.
The most common consumer-driven
health care plans pair a health reimbursement arrangement (HRA) or a health savings account (HSA) with a high deductible
insurance plan. The HRA and HSA are
important components in helping the
employer re-evaluate its benefit plan design
in an effort to reduce premiums.
“These products allow an employer to
select a plan with a higher deductible while
continuing to provide coverage that meets
the needs of the employees,” says Barbara
Baldwin, an account executive with JRG
Advisors, the management company for
ChamberChoice.
Smart Business spoke with Baldwin
about HSAs and HRAs, how they work and
how they compare to each other.
What is an HRA?
An HRA is an employer funded account
that is designed to reimburse employees for
qualified medical expenses. HRAs are
designed to operate with a high-deductible
health plan, thereby reducing premium
costs while encouraging employees to
spend wisely. The employer sets up the
HRA and determines the amount of money
available in each employee’s HRA for the
coverage period.
Employees enjoy the following benefits
from having an HRA:
■ Contributions made by the employer
are excluded from gross income.
■ Reimbursements for qualified medical
expenses are tax-free.
■ Any unused amount in the HRA can be
carried over from year to year.
The employer funds the HRA and, therefore, owns the account. There is no limit on
the amount of money the employer can
contribute to the account. The employer
can choose to fund the HRA with an annual contribution or on a monthly basis.
What is an HSA?
An HSA is a tax-free savings account for
medical expenses used in conjunction with
a qualified high-deductible health plan
(QHDHP) with a minimum deductible of
$1,150 for an employee and $2,300 for an
employee with dependents.
The employer, the employee or anyone
else on behalf of the employee can make
contributions to the HSA through payroll
deductions or as a lump sum deposit. There
is no limit to the number of contributions
that can be made. There are, however,
annual limits to the total dollar amount that
can be deposited to the HRA (2009 limits
are $3,000 for an employee and $5,950 for
an employee with dependents).
Unlike the HRA, the HSA account is the
employee’s account; the dollars are the
employee’s dollars. Since the employee is
the account holder or HSA beneficiary, the
employee manages the account.
The consumerism approach requires communication and education, not only to help
employees understand the programs but
also to encourage them to become better
consumers of health care. While still fairly
new, the consumerism model is growing in
popularity. Only time will tell of the ultimate
impact on the health care landscape.
BARBARA BALDWIN is an account executive with JRG Advisors, the management company for ChamberChoice. Reach her at
(412) 456-7256 or [email protected].
