A high deductible health insurance plan (HDHP) requires insured patients to pay significant sums before insurance kicks in. These plans must, by Federal law, feature higher deductibles than typical plans, and must cap a patient's out-of-pocket costs.
Health Savings Accounts (HSAs)
HDHP policyholders can open special tax-favored Health Savings Accounts (HSAs), under which they can divert pretax income to pay for medical care. Because HSAs offer special tax advantages, the IRS restricts how patients can use the money. HSA funds can only be used for specific medical expenses listed in IRS Publication 502, Medical and Dental Expenses. Money not spent on qualified medical expenses is subject to taxes and penalties.
Health Reimbursement Arrangements (HRAs)
This cost-saving plan is similar to an HSA, but HRA funds are held by the employer for disbursement to employees to pay medical expenses. Contributions to HRA funds are tax-deductible to the employer, and remain with the employer when the employee leaves the workplace. HRAs are not limited to use with HDPs, but can be used with any standard health insurance plan.
How Do HRAs Benefit Employers?
- More control over management of benefit plan costs
- Answer to escalating health care costs
- Favorable plan design options
- No advance payments to employees
- Total control over reimbursement amounts
- Great benefit at a low cost
- Tax deductions for reimbursements
- Help attract and retain good employees
- Soften impact of higher deductibles to employees
How Do HRAs Benefit Employees?
- 100% employer funded
- Provide employees with choice
- Provide patient direct features
- Tax free reimbursement for substantiated medical expenses
- Allow for carryover of unused money
- Easy to understand and utilize