Rick Rosenquist 2012-12-12 01:06:11
By now, firms should have at least looked at or already implemented a HDHP/HSA strategy. If not, it is worthy of (re)consideration. Many firms may see the benefits for moving to a HSA qualified plan, mainly, the lower price point and the flexibility to adjust HSA contributions in future years, and the potential for better utilization and reduced claims. Employees are eager to learn more about health savings accounts (HSA’s), which continue to generate interest as an emerging option in health care. With these two components in mind, the following is a list of things to consider when implementing a HDHP/HSA plan: HSA’s vs. flexible spending accounts (FSA’s): In 2013, FSA’s medical reimbursement will be limited to $2,500. FSA’s contain a use it or lose it provision. Therefore, employees are required to be very good at estimating their expenditures or risk losing it, or not taking full advantage of the tax break. However, FSA’s are also instantly financed-meaning the election amount is available from day one of the plan year. HSA’s need to build up over time, allowing accumulation to the deductible and out of pocket maximums. FSA’s do not allow mid year election changes, whereas HSA contributions are not subject to the use it or lose it rule, and employers must allow employees to adjust their contributions on a monthly basis at a minimum. HSA’s are actually tax free: Firms continually push participation in their 401(k) plans since employees receive a tax break and watch their money grow on a tax-deferred basis. Employees will not pay taxes on their money until they actually withdraw it. HSA’s work the same way, however, as long as employees use the funds for qualified medical expenses, they will never pay taxes on the money. Once someone reaches age 65, they can use their plan like a 401(k). If they withdraw funds for eligible expenses they are tax free, while non-qualified expenses will be subject to taxes. A caveat here, eligible medical expenses are those defined by the IRS Code Section 213(d), so while one may think that something should be covered, you may find yourself paying taxes on money you used in error, plus a 20% penalty. High Deductible/No-Co-pays: The minimum deductibles for 2013 are $1,250 for individuals and $2,500 for families. The maximum out of pocket for 2013 is $6,250/ individual and $12,500/family. Also, there can be no copays included in the plan. This can be a paradigm shift for those employees used to a traditional PPO and the accompanying lower deductibles/co-pays. When someone realizes the “true” cost of their medication is $110 and not the $20 co-pay, they suddenly realize they “have “skin in the game” and may inquire about generics or the $4 drugs available at some pharmacies (which is most likely what the intent was). HSA’s create financial incentives and discounts on medical services: Because HSA’s are a “cash” account, it empowers consumers with an option to negotiate pricing on many medical services, which can lead to substantial savings on medical expenses. For example, standard imaging services can vary widely in price depending on location and payment method. An MRI, for example, can cost anywhere from $400 to $1800 for the exact same service. Some of the insurance carriers have come up with very robust tools showing this price and quality transparency on services. Education is paramount: HSA’s do mandate a great amount of education when they are initially introduced to a firm. Unfortunately, many employers and their brokers fall short in this when implementing a HDHP/HSA strategy. HSA communication material from TPA’s, banks and insurance carriers are getting better all the time and there is no reason to not do a thorough job of educating and reeducating employees on how to benefit from this strategy. HSA’s are portable: If a employee switches jobs, the HSA account follows. The employee “owns” this account and all benefits that come from its good management. The more successful HDHP/HSA strategies have a contribution from the firm. The lower price point of the HDHP affords the firm to sink some money into their employees HSA accounts. Employees are able to see this accumulation every time they log in to their account, as opposed to lowering their premium contributions, which we all know will be “out of sight..out of mind.” The other option is a pay raise, which would include the applicable FICA, State and Federal taxes. Contributions to an HSA by the firm are an expense, and employees receive the contribution tax free. In conclusion, with the incentive to save and earn money, consumers are encouraged to become educated on health care and medical services to become active participants in the control of their health and wellness. Providers of medical products and services are forced into healthier competition for consumers. Additionally, there is a personal incentive to make smarter decisions about the use of the health care system (i.e. $4 generic prescriptions),thus decreasing the likelihood of its abuse. Overall, it becomes a more efficient system, and the costs of medical services decreases to meet the market realities. The HSA is an easily understood tool that offers consumers a very manageable way to take control of their health investments. It puts all of the financial incentives in the right place to encourage the consumer to make healthier lifestyle choices, better health care related financial decisions, and to invest and save money over time for future medical needs. Consumer driven health care has the power to change a family’s financial future while also catalyzing positive change in America’s health care system as a whole.
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