United Benefit Advisors (UBA) says that more than one-third (35.1%) of all health plans offered employees a way to help pay their out-of-pocket expenses in 2016, through either a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA). Carol Taylor, a UBA committee member and benefits advisor with D&S Agency, a UBA Partner Firm, expects to see more of the same in 2017 and beyond.
“Health care costs continue to rise, so employers continue to use cost savings tools like HRAs and HSAs, in order to provide affordable benefits to their employees,” Taylor says. And she doesn’t see it ending anytime soon. “Until we address the real problem driving health care costs—the cost of care itself—we expect to see this trend continue,” she adds.
HSAs account for the lion’s share of these supplemental savings plans, according to the UBA 2016 Health Plan Survey. Their use is increasing, with 24.6% of plans offering one, up nearly 22% from 5 years earlier.
Enrollment in HSAs increased, too, rising 25.9% in one year, and almost 140% in the 5 years from 2011 to 2016. HRAs are less popular, according to the survey. The percentage of plans offering them has remained flat in the last 5 years, at about 10.5%.
Both Accounts Share the Same Goals
Employers and employees reap benefits from both kinds of plans, but in different ways. Understanding key differences can help you make the right decision for your company. As a starting point, assume your company—like just about everyone else’s—has seen health insurance costs steadily increasing over the years, driving you to seek alternatives for the company and for the employees.
Both HRAs and HSAs are used for two main reasons: to control health insurance costs and to encourage consumerism. They help control the cost of health insurance because they make it easier for employees to afford the higher out-of-pocket expenses that come along with higher deductible (and lower premium) health insurance plans.
At the same time, high deductible health plans encourage patients to shop for their health services because they eradicate the belief and expectation that a doctor visit costs, for example, $25—an idea their HMO co-pay may have inadvertently encouraged.
Here are a few of the key comparisons you should make as you decide which kind of account would best fit your company and your employees:
- Ownership. The company owns the HRA, while the employee owns the HSA. This means that when the employee moves to another employer or retires, an HSA goes along. With an HRA, any balance in the account reverts to the employer.
- Funding. The company alone funds the HRA. In fact, companies are not obligated to actually fund their HRAs; instead, they may merely track the accounts on paper and pay expenses as they arise. An HSA can be funded by the company, by the employee, or by anyone else, up to the limits set each year by the Treasury department. (For 2017, the maximum HSA contribution for individual coverage is $3,400 and $6,750 for family coverage. Employees who are 55 or older may contribute an additional $1,000 per year).
- Health plan type. An HRA may be used to supplement any deductible-based health plan. HSAs, on the other hand, can only be used in combination with insurance plans featuring a sufficiently high deductible, as determined each year by the Treasury department.
HSA contributions are tax-favored; when the employee contributes, he or she can deduct the amount (up to the legal limit) from current income taxes; the account grows tax-free; and when they are used to pay for qualified health care expenses, withdrawals are not subject to income tax. This is true even in retirement, making the HSA a valuable secondary means of saving for retirement.
Because the company owns the HRA and the account does not move when the employee changes jobs, some companies consider it an employee retention tool. They also appreciate having additional control over who may have an account, and flexibility about how the account may be used.
Elizabeth Kay, another UBA committee member, is Compliance and Retention Analyst at AEIS Advisors. She says, “The HRA component of a health plan is essentially self-funded by the employer, which gives the employer a lot of flexibility, and can be tailored to their specific needs or desired outcomes.
“For example, if an employer has a young population that is healthy, it may want to use an HRA to pay for emergency room visits and hospital in-patient stays, but not office visits—so the employer can help protect its employees from having to pay those ‘large ticket items,’ but not blow their budget.
“[Meanwhile}, an employer with a more seasoned staff, or diverse population, may want to include prescription drugs as a covered benefit under the HRA, as well as office visits, hospital in-patient stays, outpatient surgery, etc. Or if an employer needs to look at cost saving measures, it may want to exclude prescriptions from being eligible under the HRA.”
HSAs and HRAs each encourage employees to become more engaged in their healthcare decisions, and provide a means for them to pay for additional costs that may be involved. The type of plan you choose to offer is an important decision. For more information about HSAs and HRAs, visit United Benefits Advisors.