CDH - Consumer Driven Healthcare

Consumer-driven health care plans are gaining popularity with major employers these days. The underlying principle of consumer-driven health plans is that the consumer participates in the cost of his or her health care via a health care spending account that is used to pay for a variety of qualified medical expenses both covered and not covered under an insurance plan.  Through this process the consumer becomes aware of the costs thus developing a more prudent approach to the expenditure of health care dollars.

Three main types

Three types of health care spending accounts are:

1. FSAs (Flexible Spending Accounts)
2. HRAs (Health Reimbursement Arrangements)
3. HSAs (Health Savings Accounts)

The grid below compares key features of these three health care spending accounts.

FSA, HRA, and HSA Comparisons
Account Features	FSA	HRA	HSA
Who owns the account?	Employee	Employer	Employee
"Use it or lose it?"	Yes	May be carried over to next benefit year.  Determined by the employer.	Unused portion is carried over to next benefit year
Access to account upon leaving employment?	Yes	Maybe - employer may opt to give employee the funds or to keep the money	Yes
Rollover funds upon leaving employment?	No	Yes, but only if employer allows and only for qualified medical expenses	Yes
Employee can contribute to account?	Yes	No, employer money only	Yes, but employee and employer cannot contribute in same year
Must be paired with a high deductible plan?	No	No	Yes
May be used in conjunction with other health care spending accounts?	Yes	Yes	Yes
Money may be used for expenses other than health care?	No	No	Yes, but tax penalty
Tax consequences?	Reduces employee's taxable income	Reimbursements are tax- free	Qualified HSAs are tax-free

 

Advantages of HRAs

 

The flexibility of CDH allows for greater control of cash flow. An HRA is entirely employer funded.  An HSA can be funded by the employer, employee, or both.

 

Benefits to the employer

 

	Account funding is tax deductible as a normal business expense
	Employers do not need to pre-fund accounts.
	Reimbursements may be made from the employer’s general account
	If the employer chooses to pre-fund accounts, the employer can retain ownership of the funds.
	If employee separates from the organization, HRA funds can remain with the employer.
	Benevolent employers can chose to allow employees to retain HRA funds in their account upon separation from the organization.

 

Employers have great flexibility in HRA plan designs.

 

They may determine:

 

	The maximum amount of annual reimbursement - there is no preset government limit.
	The timetable for making contributions for those who chose to pre-fund
	Who pays the deductible expenses first – the employer or the employees.
	Whether the funds can be carried over to the next year, and if so, the amount that can be rolled over.
	Whether to place a cap on the amount that can be accumulated over time, and if so, the amount of the cap.
	The number of HRA benefits plans to offer - employers can offer different plan designs for different classes of employees subject to nondiscrimination laws and regulations.

 

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Contact

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If you would like to improve your current efforts to maintain an effective, yet cost contained employee benefits, then contact ....

Mark Singer at: (630) 416-6171

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