Consumer-Driven Health Care: Controlling Costs While Providing Coverage

Employers today are struggling to keep up with the rising cost of health care. This increase in health care costs has hit both small business and big business alike, forcing many companies to drop or decrease employee benefits. As a result, many are moving away from traditional health care options to try new alternatives, such as Consumer-Driven Health Care arrangements. These health plan options give employers a variety of ways to achieve both cost savings and competitive benefit packages that help retain employees.

Consumer-driven benefit models such as HSAs, HRAs, and FSAs promote consumer awareness of health care expenditures while reducing premium costs for employers and allowing employees to take advantage of available tax savings. While many employers already offer a Flexible Spending Arrangement (FSA) option, companies have been offering more and more of these additional options designed to involve workers more directly in their own medical care.

A Health Savings Account (HSA) is a tax-exempt account created exclusively to pay for the qualified medical expenses of the account holder and his or her dependents. To qualify for an HSA, individuals must have a High Deductible Health Insurance, meaning a plan that requires a certain amount of money up front before coverage kicks in. Unlike other medical savings accounts, the money in an HSA does not have to be used in the same calendar year in which it was saved, allowing the account holder to save for medical expenses down the road. And the tax advantages are substantial. Employers with a cafeteria plan receive FICA tax savings while their employees’ contributions through the cafeteria plan are pre-tax.

A Health Reimbursement Arrangement (HRA) is an employer funded account that reimburses employees for qualified medical expenses, deductibles and co-insurance amounts. An HRA can be used with any medical plan, but must be established and funded with employer dollars. Like an HSA, unused dollars may be used from year-to-year, as long as the employer designs the plan to allow for rollovers (and the employee continues to be a member of the plan). Most importantly, HRAs require employees to pay health care expenses, causing them to spend heath care dollars wisely. The tax advantages benefit employers and employees alike. Employers may deduct reimbursed employee medical expenses as a business expense; at the same time, these reimbursements don’t count as employee income, saving employees valuable tax dollars as well.   For an overview of these accounts, take a look at our useful Comparison Chart.

A Flexible Spending Arrangement (FSA) is a type of cafeteria plan authorized under Section 125 of the Internal Revenue Code. Separate accounts can be set up to cover each of the following types of expenses: health insurance premiums (known as a "premium-only plan"), qualified medical expenses, and dependent care expenses. With an FSA, an employee designated amount of pre-tax income is taken from an employee’s paycheck and put into an account to be used for medical expenses throughout the year. Unlike an HSA, FSAs have a "use it or lose it" provision, meaning that employees must use the dollars in the year in which they are saved or they will lose them at the end of the year. Employers with a cafeteria plan enjoy FICA tax savings while their employees’ contributions are made on a tax-free basis. To learn more about ways to achieve both cost savings and the coverage needed today, contact Chris DeLorey at Telamon today.

Join Telamon for a Seminar on 403(b) Regulations

On October 24th, Telamon and Boston Private Bank & Trust will be hosting a Lunch & Learn event from 12 – 2pm in Waltham, MA. Telamon’s own James Sampson, Director of Retirement Services, will be speaking about 403(b) regulations and what you need to know now that these regulations have been finalized. For more information on this event, including directions and registration information, click here.  

Meet Chris DeLorey, Telamon's President of Financial Services

Christopher has been helping people manage risk for over twenty years, and as President of Financial Services, he is committed to helping companies get their health care costs under control. Read more…