- Employee Benefits
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During my first week at Safegard I had the opportunity to learn from Kelly Wentzel, an account manager in the Employee Benefits Division, about different health insurance options for employees. The four components I was taught about were Health Reimbursement Arrangements (HRA), Health Savings Accounts (HSA), Flexible Savings Accounts (FSA), and GAP Plans. I was able to learn from Kelly the concepts of each option, advantages/disadvantages, and major differences of the four. After my lesson, I was tasked with writing a blog post explaining what I learned and including examples of each option.
Health Reimbursement Arrangement (HRA)
A Health Reimbursement Arrangement (HRA) is an option provided by employers to help employees pay for qualified medical expenses, which may include an employee’s deductible or copay. An employer deposits money into the employee’s HRA, where the money becomes available to the employee at the beginning of the year. HRA’s provide employees with a couple different advantages, which include employer contributions, affordability, and carryover. If presented the opportunity of an HRA, it is fully funded by an employer and 100% tax-deductible to the employer. Also, Health Reimbursement Arrangements are made affordable, as the premiums for health insurance plans with an HRA are generally less per month than other plans. Another advantage of an HRA plan is that the balances in the HRA account carryover from year to the next. Despite offering multiple advantages, there are also disadvantages one must recognize when considering this plan. HRA plans do not pertain to everyone, as those who are self employed do not qualify for these plans. The set rules and regulations in place regarding this topic make it difficult for employers to know if they can utilize HRA’s. Lastly, when one leaves an employer the money in the account does not transfer to the departing employee, as the employer is in control of the HRA funds.
An example of a Health Reimbursement Arrangement in use would represent an employer depositing $1,000 into the account at the beginning of the year. An employee visits a doctor for an annual exam, which is 100% covered, so no money from the HRA account is deducted. Over the course of a year costs of eye exam, contact solution, and eye drops incur to be $450, leaving $550 left in the account. The employee does not use the remaining balance for the rest of the year. When the new year comes, the employer deposits another set amount of $1,000, increasing the account total to $1,550 for the employee to utilize on health costs, if need be.
Health Savings Account (HSA)
The second account I learned about was the Health Savings Account. This health care option is an account created for individuals who are covered under high-deductible plans to save for medical expenses. The money deposited into these accounts can help pay the deductible, until it is reached and the insurance starts paying. Health Savings Accounts are most advantageous in regards to taxes. All contributions into HSA’s, from the employer or employee, are 100% tax-deductible, and withdrawals from the account to pay qualified medical expenses are never taxed. Also, the interest earned within the account accumulate tax-deferred. As the accounts continue to grow tax-deferred over the year, any unused money in the account is not forfeited at the end of the year. The disadvantages associated with Health Savings Accounts include fees, pressure to save, budgeting, and the requirement of a high deductible plan. Fees are included here because some HSA’s charge monthly maintenance or transaction fees. The pressure to save for one’s HSA may force people to be inclined not to seek medical care in order to build savings for emergency in future. Also, it is difficult to predict when a health issue or illness may arise, which makes it tough for one to budget their HSA in the future. An example of an individual using a Health Savings Account would be an individual making a monthly deposit of $300 into their account. Then, for instance, their child suffers a broken bone in a sporting game and uses the HSA funds to cover the medical expenses.
Flexible Spending Account (FSA)
The third account, a Flexible Spending Account (FSA), is a health savings account that gives account holder certain tax advantages and allows employees to contribute portions of their regular earnings to pay for qualified expenses. Flexible Spending Accounts offer the opportunity to the employer and employee to benefit from tax savings. The money the employee contributes to the account is deducted from pay before taxes, and the employer benefits because they save by not paying wage taxes on the contributions made by the employee to their FSA. An FSA also allows employees to save and accumulate funds throughout the year for medical expenses. The negative aspect of FSA’s include an annual contribution limit, limited roll over, and not being portable. FSA’s are considered a “use it, or lose it” account, which means funds typically do not rollover into the following years balance. FSA’s are also not portable in the sense they are tied to employment. An example of this account in use would be an individual setting aside pre-tax dollars derived from their paycheck to place into the account. The individual may elect to utilize the FSA on out-of-pocket expenses such as dental, x-rays, and braces.
The final and fourth health option was the GAP plan. This is an option that works as a supplement to one’s current health plan. A GAP plan offers additional financial protection and lessens the financial impact when one is faced with the unexpected need for medical care. They are beneficial when one needs to pay for a large deductible associated with their current insurance plan. The GAP plans benefits include being utilized for prescription medication costs, medical bill payments, and coinsurance/copayment amounts. The two negative aspects included with this plan are the regulation in place and the policy level factors. The regulation for GAP plans are different than major insurance plans, as they are not regulated by health care law, and providers can deny consumers based on past medical history. The policy level plays a part in that the more coverage needed for an individual, the higher the monthly premium for the plan will be. An example of a GAP plan would include an individual whom currently is insured under a high deductible plan. The individual wishes to alleviate the cost of the deductible and agrees to a GAP plan that requires payments of $50 a month for protection. Then, when needed, the GAP plan would pay for the deductible, protecting the consumer from the high cost.
So, while these plans may seem similar to one another, they each have different characteristics. They all operate in the sector of health insurance, but each use different and unique methods in benefiting the user in saving money against high health insurance costs.