Wholesale Insurance Brokers, Health Insurance and Employee Benefits Providers - Client First Brokerage Services in Maryland

Consumer Driven Health Plan
Health Reimbursement Arrangement
Health Savings Account

A consumer driven health plan (CDHP) is a plan with specific design features intended to encourage or provide incentive to the covered person to better participate in the health care purchasing process. Encouraging more cost effective settings, generic prescriptions, or better lifestyles are all examples of the goals of certain features of a CDHP. Buying less insurance is a good thing... most of the time. What about the rest of the time? Consumer Driven Health Plans (CDHPs) are built on a philosophy of buying less insurance, paying less for it, and handling the most affordable costs yourself. This can either be handled as a company in Health Reimbursement Arrangements (HRA) or as an individual in a Health Savings Account (HSA) type of plan.

In June of 2002, the IRS established a ruling and terminology for what are now known as Health Reimbursement Arrangements (HRAs). An HRA is an extension of a qualified medical reimbursement plan, in which the employer agrees to provide reimbursement for certain employee medical expenses. This process has always enjoyed a tax favored status as employer payments for reimbursement of IRS qualified medical expenses are deductible to the employer and not considered taxable income to the employee. The 2002 ruling added clarification that an employer promise of reimbursement that goes unused in a given year, can in fact, be carried forward for future years' expenses without adverse tax consequences.

Additionally, this ruling led to the establishment of several rules and guidelines for HRA utilization. In essence, non-discrimination rules, and other various guidelines were provided.

Basically, the HRA plan is an arrangement where an employer allocates dollars for the reimbursement of employee (and dependent) qualified medical expenses not covered elsewhere. Funds for HRA reimbursements always come from the employer, NOT from the employee.

What are the benefits of an HRA? The benefits of an HRA plan vary widely from plan design to plan design, but most often the plan is designed to SAVE THE EMPLOYER MONEY WITHOUT SIGNIFICANT COMPROMISE TO THE EMPLOYEE BENEFIT PLAN. An HRA is most often coupled with a high-deductible health plan, which reduces the premium considerably. This high deductible however, frequently becomes an issue of contention with the employees receiving the benefit. Therefore, the employer utilizes some or all of the savings to establish authorized reimbursement of employee qualified medical expenses for a portion of that deductible amount. Those employees that actually incur medical expenses are subsidized by the HRA promise made by the employer. Often, the numbers show that the employer can provide benefits comparable to the previous benefit structure at an overall reduced cost. Additionally, if the employee population enjoys a favorable level of expenses, the employer retains the funds allocated for those expenses as well as the premium reduction for the high deductible health plan.

Finally, the advantages of an HRA include a higher level of consumer awareness as to the spending for health expenses. Employees would typically prefer keeping their expenses to within the employers' allotted amount, thereby having full coverage for their needed expenses. This is likely to change employee behavior somewhat, to reduce over utilization of the health care system.

A Health Savings Account (HSA) is one of the newest and best ways for many to set aside money for inevitable health care expenses. There are many advantages to HSAs. First, HSAs create tax-free money for un-reimbursed medical expenses. HSAs earn tax-deferred growth and excess funds can be invested to maximize earnings. HSAs are also excellent ways to create supplemental retirement income.

The federal government created HSAs to be used in conjunction with a QUALIFIED high deductible health plan. Not all high deductible plans are qualified - special rules have been created to define exactly what type of coverage allows someone to open an HSA. First, an individual may not have any other type of health coverage besides a qualified high deductible health plan to be eligible to open an HSA. Coverage such as dental, vision, disability, and accident insurance are permissible. The minimum deductible is indexed for inflation by the IRS each year. This amount for 2008 must be at least $1,100 for self-only coverage or $2,200 for family coverage. The out-of-pocket maximum cannot exceed $5,600 and $11,200, respectively. In addition preventive services, such as annual exams, routine visits, and well child care may be covered with simple co-pays, without meeting the deductible. All other expenses, including prescriptions, must be subject to the deductible before coverage begins.*

The premise of this type of arrangement is that it allows someone to purchase health coverage that protects them from the bad things in life but allows them to take care of the small things themselves. Those who use this type of a plan are more responsible for their routine healthcare costs and therefore make more cost effective decisions regarding their care. This, in addition to the increased cost sharing and reduction in administration costs, results in a substantial reduction in the premiums of these plans. Quite often, the budget for a qualified high deductible health plan used in conjunction with an HSA to cover the deductible is still less expensive than a comparable "traditional" plan without the deductible. This means that it makes sense for everyone to consider this strategy regardless of their age or health status.

The concept here is simple - use the same money in your healthcare budget to buy a reasonable amount of insurance for less money and put the difference in a specially treated fund that is there if you need it, and yours to keep if you don't use it! Let Client First look into your options in qualified high deductible health plans and Health Savings Accounts today. We have the knowledge and resources to determine and present your best options available.

*The preceding is meant to be a brief overview of the rules regarding what constitutes a Qualified High Deductible Health Plan by the IRS. Other rules apply.

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