Health Insurance Daily

Health Savings Accounts and Health Reimbursement Arrangements

Businesses constantly strive to find a balance between providing quality group health insurance coverage and the costs associated with this coverage. Consumer directed health plans may provide your organization an opportunity to achieve this balance.

Most of you have heard about “consumer directed health plans”. The Bush administration has been a strong supporter of this concept as a way to get a handle on soaring health care costs. All indications are that consumer directed health plans will make up an increasingly larger percentage of group medical plans over the next several years.

The consumer directed health care concept is based on the fact that ultimately employers and employees together have a vested interest in achieving levels of benefits and costs that are both affordable and sustainable.

A major goal of any consumer directed health plan should be to get the consumer more involved in both the cost and outcomes of certain health care procedures. Informed health care consumers make better medical related decisions and in many cases these decisions will result in both improved quality and lower costs.

Consumer directed plans are designed to provide the information and incentive necessary for individuals to be more efficient consumers of health care. One critical aspect of controlling health care costs is that consumers need to spend money on medical care like it is their own and not “some large insurance company’s money”.

In the past, consumer directed plan designs have taken on many forms: Medical Savings Accounts (MSAs), Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). Many experts consider HRAs and HSAs to be the first generation of consumer directed health care products with mass market appeal.

Health Reimbursement Arrangements are typically paired with a high-deductible health plan and are 100% employer-funded. HRAs are created to help the employee offset the higher deductible and provide the employer with the opportunity to reduce overall health plan costs. Plan parameters and eligibility are established by the employer. HRAs have not received as much press coverage as HSAs but are an excellent fit for many employers.

Health Savings Accounts are the latest version of consumer directed health care plans. The core components of HSAs include a high deductible insurance product and a cash spending account. Contributions to HSAs may be made by employers, individuals, or both. The dollars placed into an HSA belong to the individual and go with the employee should they leave the company. The dollars remaining in the HSA account at the end of the year roll over. Proponents of Health Savings Accounts describe HSAs as combining the pre-tax treatment of an FSA, the portability and roll-over characteristics of a 401(k), and the tax-free distributions of a Roth IRA.

Although the advantages of HRAs and HSAs can be substantial, employers will want to do their homework prior to setting them up. The type of consumer directed health plan that best fits your organization will depend on your corporate structure, the accompanying administrative requirements and the overall objectives of your group health insurance plan. Companies will also need to look into how the creation of an HSA or HRA may affect their HIPAA medical privacy compliance requirements.

Although consumer directed healthcare plans are becoming familiar to human resource managers and other benefit professionals, remember that your employees and their dependents will need a substantial amount of education and communication. Employee education will be essential to successfully implementing a consumer directed health plan. If done properly, the pay off can be significant for both the employer and their employees.

posted by Mike @ 4:15 PM