With so much discussion surrounding health care of late, it’s important to know what current options are available to ensure that you as an employer are selecting the best coverage for your business and its employees.
With more and more frequency, employers are leaning toward a Consumer-Driven Healthcare Plan (CDHP)—a plan in which employee/consumer behavior plays a significant role in its effectiveness.
Because CDHPs are paired with a High-Deductible Health Plan (HDHP), they typically have a much lower premium cost than a traditional standard-deductible plan. This can be very beneficial to both employees and employers.
Two popular types of CDHP are Health Reimbursement Arrangements (HRA) and Health Savings Accounts (HSA). Both of these ‘incentivize’ policyholders to educate themselves to understand their healthcare needs and ultimately, to minimize unnecessary spending.
Many clients are now opting for HRAs, which are similar to HSAs but have a number of key differences. While both plans provide advantages for both employers and employees, they are structured differently and are not subject to the same requirements.
Here are details about each type of plan that may assist you in selecting the most appropriate healthcare coverage for your employees.
HRAs are programs in which the employer typically contributes a specified dollar amount toward the deductible for the employee. The employer owns the plan and controls all contributions, with an option to allow the funds to be rolled over from year to year.
When this option is exercised, holders of the HRA plan who do not use all of the funds in the account can roll over those excess funds to help offset the next year’s deductible.
Employees have access to all funds for the year even if a claim is incurred on “day one” of the plan’s activation, and preventive care is generally not subject to the deductible.
Employers have some flexibility with HRAs as well. With this program, employer contributions can range from nothing up to 75 percent of single and family deductibles, and the employer is able to alter the contribution amount each year when re-electing the benefits for the plan.
An HSA is a savings account in which the employee has the opportunity to contribute pretax dollars that go toward the deductible and future eligible medical expenses.
The employee may also contribute funds toward the account. Because pretax dollars are being contributed, an HSA holder saves even more because his or her overall taxable income is reduced by the fund contribution amount.
Different from an HRA, in which the employer owns the account and promises to pay funds at the time of claim, an HSA is employee owned. Funding can be from both the employee and employer.
HSAs are also different from HRAs in that holders can only access the employer’s funds that have been contributed up to the date a claim is incurred.
HSAs allow for many health-related expenses in addition to what a traditional plan would cover. While expenses such as doctor and hospital visits and prescriptions are covered, HSAs also cover dental and vision services, some over-the-counter medicines, and acupuncture and massage, among others.
Since HSAs are owned by the employee, the account is not lost when that employee switches jobs; rather, the HSA is portable and can be transferred to the employee’s next job.
The employee also does not lose the funds at the end of each year. Unlike an HRA, the HSA’s funds always carry over to the next year, and the employee continues to own the account and all of its benefits.
Involve Your Employees
When deciding among healthcare plans, it’s key to consider the importance of empowering your employees to become knowledgeable and involved with their own health and well-being.
This saves both employees and employers money over the long-term. CDHPs reward employees who take an active role in educating themselves about their health and practicing a healthy lifestyle by enabling them to manage their spending as they deem appropriate.
Scott Kirsch is senior vice president of Meltzer Group Benefits, a division of The Meltzer Group, an insurance industry leader based in Bethesda, MD. The Meltzer Group provides expert business, personal, and corporate insurance and financial strategies.
– by Scott Kirsch, Meltzer Group Benefits