Alabama Tire Dealers Association - So Many Plans So Many Choices

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So Many Plans, So Many Choices

Most employers have replaced previous “first-dollar” health insurance plans with more affordable high-deductible plans. These Consumer Driven Health Plans (CDHPs) have helped ease the employer’s burden of increasing health insurance premiums by shifting more costs to employees in the form of higher deductibles and higher premium contributions. These plans encourage wise spending habits and offer employees greater flexibility and control in managing their health insurance costs.

CDHPs offer a wide variety of options, but choosing the right program for your business can be like wading through alphabet soup:

§ HSAs

§ DRPs

§ HRA

§ Qualified High Deductible Health Plans

How do you decide with so many different program names and acronyms to decipher?

Most programs in today’s market fall into one of these categories—health reimbursement accounts, health savings accounts, or defined reimbursement accounts. The following table shows the advantages and disadvantages of each and may help you decide which type is right for your business. All of these programs are beneficial and can help meet your health benefit goals.

Providing a health insurance benefit is a “great compromise” in today’s business climate. It is a fine balance between providing employee benefits at an equitable cost to your business while providing a valuable benefit to your employees.

The health care system has changed significantly and employees are obligated to take more responsibility for deductibles and their choice of healthcare providers. Employees can “shop” for the best care with the lowest out-of-pocket costs to save on their deductibles and co-insurance. They can ask about providers’ fees and find published information about costs of various procedures to make wise and cost-effective choices. Combined with the flexibility of health savings accounts, employees and employers alike can effectively manage their health coverage and costs.

Type	Contributions	Advantages	Disadvantages
Health Savings Account (HSA)	The employer and/or the employee can contribute to the HSA in lump sum or monthly payments.	Employer contributions are tax favored and the plan is not subject to ERISA if structured properly. Funds accumulate from year to year. The employee owns the account funds upon contribution and funds can be invested in various investment vehicles ( i.e., mutual funds). The employee keeps the account upon termination. Medical, dental and vision expenses are all eligible. Accounts provide tax-favored treatment to the employer and employee.	The health insurance plan must meet specific high deductible health plan requirements, including no reimbursement for prescription drugs or office visits prior to satisfying the annual deductible. Some plans require that the entire family deductible must be met before coverage begins (comprehensive deductibles). Claims documentation is not required for withdrawals from the accounts.
Defined Reimbursement Plan (DRP)	The employer agrees to reimburse the employee for a predetermined amount, only if the employee incurs medical expenses.	There are no restrictions on the type of health insurance plan. Plan changes are easy to make at any time with significantly less paperwork and record keeping for the employer. Processing is handled electronically with many plans, including Federated’s “paperless” claims processing through Freedom Services, Inc. The employer predetermines which expenses are reimbursable. Employees must provide documentation of medical expenses to receive reimbursement. Tax advantages may be possible.	The claims process may require some paper handling and the plan is subject to ERISA guidelines.
Health Reimbursement Account (HRA)	The employer agrees to reimburse the employee for a predetermined annual amount for healthcare.	There are no restrictions on the type of health insurance plan. Claims must be documented and handling may be paperless. Reimbursable expenses are predetermined by the employer. Unused funds roll over from year to year so the employee can accrue health care dollars for future needs. This plan also offers tax advantages.	This plan creates an “unfunded liability” for the employer because employees do not contribute. The claims process is often “paper-driven” with some plans. Participants are not able to “cash out” of the plan and rollover value ceases when the plan ends. Claims must be documented for reimbursement.
NOTE: This table provides a simplified summary of some facets of these programs. It is not intended, nor should it be relied upon, as a comprehensive description of these programs or the provision of legal advice. For complete information on these programs please review the relevant federal regulations or discuss with your legal counsel