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 firstname.lastname@example.org.