Over the last decade or so, there has been a quiet shift in how employers are thinking about their approach to health coverage. Traditionally, you’d find a set of plans and let your employees choose how they would cover their health needs. But there was a problem: all employees were choosing the best plan available and overpaying for coverage they would never use. But smart, analytical companies saw an opportunity to get better coverage for their employees while saving them (and the company) money in the process. In fact, we built a company around the idea: we use FSAs, HSAs and HRAs as the foundation of a better approach to employer healthcare. Let’s take a look at each:
The Flexible Spending Account (FSA) is an employer-sponsored program that funds qualified medical expenses. The employer sets aside earnings for employees to use toward expenses not covered by insurance. The FSA most-often funds copays, deductibles, and coinsurance. Up to $500 can roll into the next year, and there’s an annual limit of $2,600.
FSA Bottom Line
Employees make a tax-free payroll deduction to fund uncovered expenses in their medical, dental, and vision plans. This ultimately increases their net spendable income because of the tax savings. The FSA is pre-loaded with funds.
An HSA (Health Savings Account) is at its core an investment vehicle (think 401k). Employees can withdraw funds tax-free to pay for qualified medical expenses they incur throughout the year. An HSA is like any other interest-bearing account, and many offer options depending on your risk profile. The employee has a pre-loaded debit card (only loaded as funds are put in) that they use at their doctor’s office, pharmacy, or hospital. To be eligible for an HSA, the employee must be enrolled in a High-Deductible Health Plan (HDHP).
HSA Bottom Line
HSAs are great for bridging the gap between what a traditional health plan covers and what an HDHP covers. Any money that isn’t used toward medical expenses is like any other investment in an employee’s portfolio.
An HRA (Health Reimbursement Arrangement) is an employer-funded (i.e. employer’s money, not employees’ money), tax-advantaged way to pay for qualified medical expenses. The employee incurs a cost at the point-of-service and the employer reimburses the amount up to a limit set by the employer. The expenses covered are a tax-deduction for the employer, and the funds don’t need to be set aside ahead of time: employers fund expenses as they occur.
HRA Bottom Line
The HRA is the backbone of a smart employer’s health approach. It solves the high-use / low-use problem. HDHPs don’t always serve employees with high medical expenses well, and an HRA allows an employer to cover the majority of the difference when an employee needs it. The only-when-an-employee-needs-it part is key: rather than over-covering all of your employees, you cover everyone appropriately and use an HRA to handle outliers.
The right mix. The right strategy.
FSAs, HSAs and HRAs are old-hat to us. We’re evangelists of creating custom approaches using these vehicles because they consistently outperform traditional plans on both a cost-basis while providing equal coverage. We’re one of the few companies that can do this in-house. Need an FSA or HSA debit card solution? We don’t outsource it because we have one right here. Need to know how to use this approach given your specific needs? Our custom analytics show you how to predict the future and prepare appropriately. Need to chat about why your current health approach seems expensive and outdated? Give us a call!