Controlling Health Insurance Costs – An Introduction To HSA’s and HRA’s

Long Island and New York group health insurance costs continue to rise…even since the enactment of the PPACA last year. So while business owners continue to wait for stablization of costs, it is important to understand some of the current (and widely unused) coverage options that are available, and which were designed to reduce premium outlay:

High Deductible Health Plans

High Deductible Health Plans (or HDHP’s) are health insurance plans that offer higher contract deductibles at the trade off of lower premiums (as compared to traditional health insurance plans). These plans are typically a requirement for tax-advantaged, IRS-qualified savings accounts such as HSA’s.

Health Savings Accounts

Health Savings Accounts (or HSA’s) are tax-advantaged savings accounts available to anyone that is enrolled in an HDHP. Enacted into law back in 2003 and funded by individual subscribers, these medical savings accounts allow portions of pre-tax wages to be placed into an interest bearing, tax-deferred account, where the funds can be used for qualified medical expenses such as:

-Payments for prescription drugs and insulin
-Payments to dentists, doctors, chiropractors, surgeons, and other medical professionals
-Medical devices such as hearing aids, crutches, prescription eyeglasses, and others
-More…

Unlike Flexable Spending Accounts (or FSA’s), HSA funds have no “use it or lose it” rule. Thus, any unused funds can be rolled over into the next plan year. This offers individual taxpayers the ability to build a good amount of pre-tax money, which can be used down the road as medical conditions arise…all while controlling premium costs. HSA-qualified plans are available in the sole proprietor, small group, and large group health insurance markets.

Health Reimbursement Arragements

Health Reimbursement Arrangements (or HRA’s) are similar to HSA’s but are employer managed and funded. With HRA’s, the employers set aside funds to pay the medical expenses incurred by participating employees. These arrangements are managed by third party administrators.

HRA’s offer tax advantages for employers and employees including:

-Reimbursements of qualified claims are tax-deductible for the employer
-Contributions that employers make can be excluded from employees’ gross income
-Unused funds in the HRA can be rolled into future years for reimbursement (just like HSA’s)
-Employees do not have to be covered under any other health care plan to participate, unlike an HSA for example, which DOES require a High Deductible Health Plan
-Employers know their maximum expense related to their health care benefit
-Reimbursement dollars received by the employee are generally tax free
-More…

Availability

As of April 2012, top-rated health insurance carriers in downstate New York offer HSA-qualified, HDHP’s including:

-Oxford Health Plans
-Emblem Health
-Aetna
-Empire Blue Cross Blue Shield

Entrepreneur Online posted an article regarding the tax advantages of HSA’s. Indeed, many businesses do not take advantages of these programs, even though, in some cases, may yield them up to 50% in premium savings for the same coverage.

Depending on employer and individual employee coverage needs, HSA’s or HRA’s can certainly help business owners, sole proprietors, and individuals lower costs for health insurance. For more information about these programs, contact a New York insurance broker.