Healthcare Savings Vehicles
02/22/2006
The continued high price of healthcare for both employers and employees, coupled with the increased utilization of medical services in 2005, will force more employers to consider introducing Health Savings Vehicles. Health Savings Accounts (HSAs) were introduced as part of the Medicare Modernization Act and are only available to employees enrolled in a High Deductible Health Plan. HSAs allow employees to set aside pre-tax dollars to off set the cost of their upfront deductible liability (see chart for limits set by the IRS). Because the funds set aside in the accounts are employee dollars they are portable and may be rolled over year to year. IRS Raises HSA Limits for 2006 - Minimum individual Deductible for 2006 $1,050
- Minimum Family deductible for 2006 $2,100
- Maximum HSA contribution per individual for 2006 $5,250
- Maximum Family HAS contribution $5,450
Health Reimbursement Accounts on the other hand are funded with employer dollars. Employers opting for HRAs most often are transitioning their employees from a no- deductible HMO plan to one with deductibles and significantly more out of pocket costs. These plans typically reduce monthly premiums by 8-15%. Employers use HRAs as a mechanism to reimburse the employee for the cost of the new deductible, when or if the services are incurred. Flexible Spending Accounts (FSAs) have been available to employees for more than 30 years. Employees are eligible to set aside pre-tax dollars to offset the cost of their unreimburseable medical or dental expenses. In 2004 the IRS issued guidance on permissible over the counter expenses eligible for reimbursement. One draw back to FSAs is the use it or lose it rule for employees as funds set aside via payroll deductions that are not used are forfeited. As more employers consider introducing higher co-payments and upfront deductibles to off set premium increases, introducing a healthcare savings vehicle for employees will go a long way at minimizing employee dissatisfaction and increasing employee’s awareness to their own costs and utilization of healthcare services. Yozell Associates is available to work with all clients in evaluating the most appropriate savings vehicle for your situation.
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