Consumer driven health plans are plans designed to lower monthly premiums while engaging employees to manage more of their health care and make smarter decisions.
“Typically these plans have higher deductibles resulting in lower monthly premiums and are partnered with a savings account or a funding arrangement that provides a benefit to the employee,” says Doug Fleisner, a sales executive at JRG Advisors.
The three main types of accounts used with a consumer driven health plan are a Health Savings Account (HSA), Flexible Savings Account (FSA) and Health Reimbursement Account (HRA).
All three are designed to get employees more involved with heath care decisions.
Smart Business spoke with Fleisner about these creative funding strategies.
What are HSAs?
HSAs started in 2004 to replace Medical Savings Accounts and have increased in number ever since. An HSA is only available to individuals enrolled in a qualified high-deductible health plan that is approved by and meets the standards set by the IRS.
If the plan is qualified, whether it is through an employer or purchased as an individual, an HSA may be set up. The account may be funded by anyone, but the insureds’ funds are deposited into the account pre-tax. The IRS will allow a single insured person to deposit up to $3,350 in 2015 and anyone enrolled with a spouse or dependents up to $6,650 in 2015.
Individuals 55 years old and over can contribute an extra $1,000 per year as a ‘catch-up’ contribution. These amounts are reviewed and adjusted for cost of living from time to time. The money in the account can earn interest and grow through a savings account or investment options.
There are sometimes minimum balance requirements for the investment option. Any interest or gains earned are tax-free, in that a person will not pay income tax on that money and if the money is used to pay for qualified medical expenses there is no tax paid on the money when used either. This is often referred to as a triple tax advantage.
Qualified plans with an HSA promote and encourage engagement by placing more of the upfront costs on the employee. This in part has resulted in more people shopping for the best costs and outcomes before using their insurance when they can.
What are FSAs?
FSAs are similar to HSAs in that an employee can use pre-tax dollars to pay for qualified medical expenses. There are even options to use the account for certain dependent day care and transportation costs. The account is set up through an employer and is only funded by the employee or the employer. An employee may choose how much to deposit in the account pre-tax from their paycheck and what qualified items to use the money for.
These plans have a maximum that may be deposited in the account. For 2015, the maximum is $2,550 and a maximum of $500 may carry over. It is important to consider what the FSA will be used for to avoid overfunding the account and losing money. These accounts do not offer investment options and do not earn interest, but they do allow a person use pre-tax dollars for medical and non-medical items and services. It is also important to verify items approved by the IRS for purchase with an FSA.
What are HRAs?
With HRAs, an employer will select a plan with a higher deductible and a lower monthly premium. The savings generated by the lower premium can be used to reimburse the employee for some portion of the deductible and out-of-pocket costs. The account is owned by the employer and typically administered by the insurance company or a third party administrator.
There are more restrictions on this type of funding arrangement now due to the Affordable Care Act (ACA). There may be limits on how much an employer may contribute. Those interested in this option should work closely with their benefits advisor to be sure to remain in compliance with the ACA and the insurance company’s guidelines.
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