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HSAs, HRAs and FSAsHSAs, HRAs and FSAsPresenter:
Peter Andrew, CEO,Council Services Plus
272 Broadway Albany, NY 12204877.501.4277, Ext 125
www.councilservicesplus.com
Sponsored by New York State Community Action Association
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Health Insurance CrisisHealth Insurance Crisis
Health insurance is the largest employeeHealth insurance is the largest employee
benefit cost. Many employers have alreadybenefit cost. Many employers have alreadybegun to cost shift rate increases bybegun to cost shift rate increases by
increasing copays and deductibles to lowerincreasing copays and deductibles to lower
premiums. This is coupled with an increasepremiums. This is coupled with an increase
in employee premium contributions thatin employee premium contributions thatresults in unbearable costs to both theresults in unbearable costs to both the
employee and employer.employee and employer.
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Dealing with Rising CostsDealing with Rising Costs
Many health policy analysts believe makingMany health policy analysts believe makingconsumers aware of the actual cost of healthconsumers aware of the actual cost of healthservices will change the relationship betweenservices will change the relationship betweenthe consumer/patient and the physician.the consumer/patient and the physician.
Once consumers control payment for mostOnce consumers control payment for mostservices, they will be more inclined to shopservices, they will be more inclined to shopfor services and inquire about their care andfor services and inquire about their care andthe cost of that care, which will lead tothe cost of that care, which will lead toimproved quality of care and increasedimproved quality of care and increased
patient satisfaction.patient satisfaction.The Medicare bill signed by the President inThe Medicare bill signed by the President in
December of 2003 included language to allowDecember of 2003 included language to allowfor Health Savings Accounts, which werefor Health Savings Accounts, which were
meant to address these concerns.meant to address these concerns.
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CDHC ConsCDHC Cons
Some social theory states that withSome social theory states that withincreased choice some consumersincreased choice some consumers
will become anxious about makingwill become anxious about makingthe wrong decision and withdrawthe wrong decision and withdraw
from the process.from the process.
Pricing Transparency within thePricing Transparency within theMedical Industry.Medical Industry.
General acceptance around medicalGeneral acceptance around medical
advice.advice.
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Health Savings AccountsHealth Savings Accounts
(HSAs)(HSAs) Became available in 2004Became available in 2004
Open to everyone with a qualified highOpen to everyone with a qualified high
deductible health insurance plan (HDHP)deductible health insurance plan (HDHP)The health plan is paired with an HSAThe health plan is paired with an HSA
account to cover eligible expenses notaccount to cover eligible expenses not
covered by the insurance policycovered by the insurance policy
Eligible individuals can not be coveredEligible individuals can not be coveredunder another health plan that is not aunder another health plan that is not a
qualified high deductible planqualified high deductible plan
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Health Savings AccountsHealth Savings Accounts
(HSAs)(HSAs) Annual deductible on insurance policyAnnual deductible on insurance policymust be at least $1,150 for individuals andmust be at least $1,150 for individuals and$2,300 for families (2009)$2,300 for families (2009)
Out-of-pocket maximums are limited toOut-of-pocket maximums are limited to$5,800 for individuals and $11,600 for$5,800 for individuals and $11,600 forfamilies for in-network expensesfamilies for in-network expenses
Preventive care services may be coveredPreventive care services may be covered
on a first dollar basison a first dollar basis
Prescriptions cannot be covered on a FirstPrescriptions cannot be covered on a FirstDollar basis (there are some exceptions)Dollar basis (there are some exceptions)
HSAs are portable and are owned by theHSAs are portable and are owned by the
individualindividual
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Contributions to HSAsContributions to HSAs
Both employers and employees canBoth employers and employees cancontribute to the account portion of thecontribute to the account portion of theplan (2009 maximums are $3000 for Indplan (2009 maximums are $3000 for Ind
and $5950 for Fam).and $5950 for Fam). Contributions by an employer are notContributions by an employer are not
taxable income to the employee and aretaxable income to the employee and arealso not subject to FICA taxes.also not subject to FICA taxes.
Individuals own their own HSAs, notIndividuals own their own HSAs, notemployers.employers.
Once an employee reaches 65 they canOnce an employee reaches 65 they can
use the money tax free for qualifieduse the money tax free for qualifiedmedical expenses or withdraw the moneymedical expenses or withdraw the money
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Health ReimbursementHealth Reimbursement
Accounts (HRAs)Accounts (HRAs)
Employers purchase basic health insuranceEmployers purchase basic health insurancecoverage.coverage.
Employers also maintain an account for eachEmployers also maintain an account for each
employee to help them pay eligible expenses notemployee to help them pay eligible expenses notcovered or increased by insurance.covered or increased by insurance.
Only employer dollars can be used to fund anOnly employer dollars can be used to fund anHRAHRA
Fund parameters are set by the employerFund parameters are set by the employer
May be available to terminating or retiredMay be available to terminating or retiredemployeesemployees
Dollars do not follow an employee to newDollars do not follow an employee to newemploymentemployment
May coexist with FSAsMay coexist with FSAs
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How will HRAs impactHow will HRAs impact
insurance markets?insurance markets?
Will be attractive to all sizeWill be attractive to all sizeemployers, but large employers inemployers, but large employers in
particular may prefer this accountparticular may prefer this accountover othersover others
HRAs do not require pre-funding, butHRAs do not require pre-funding, butare maintained on paper until aare maintained on paper until a
claim is submittedclaim is submitted Have already proven to be cost-Have already proven to be cost-
effectiveeffective
Take up rate will depend on whetherTake up rate will depend on whether
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HRA Design ConsiderationsHRA Design Considerations
An HRA has the advantage of not requiring actualAn HRA has the advantage of not requiring actualemployer contributions until claims are submittedemployer contributions until claims are submitted
for reimbursement Some employers consider thisfor reimbursement Some employers consider thisan important cash-flow advantagean important cash-flow advantage
ER may allow for some rollover so employees areER may allow for some rollover so employees areencouraged to saveencouraged to save
An HRA can be paired with an FSA to allowAn HRA can be paired with an FSA to allowemployees to pay for non-HRA allowed out-of-employees to pay for non-HRA allowed out-of-pocket costs with pre-tax dollarspocket costs with pre-tax dollars
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Flexible Spending AccountsFlexible Spending Accounts
(FSA)(FSA) FSAs are employer sponsored plansFSAs are employer sponsored plans
that allow for employer dollars orthat allow for employer dollars or
pre-tax employee dollars.pre-tax employee dollars. Employer sets the eligibility andEmployer sets the eligibility and
contribution limits.contribution limits.
Employer decides time frames forEmployer decides time frames forpost plan year claims processing.post plan year claims processing.
There are pros and cons for both theThere are pros and cons for both the
employer and the employeeemployer and the employee
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FSA EmployerFSA Employer
ConsiderationsConsiderations ER saves on the FICA (7.65% of eachER saves on the FICA (7.65% of each
EE dollar placed in FSA)EE dollar placed in FSA)
ER Could use leftover account dollarsER Could use leftover account dollarsto offset fees and losesto offset fees and loses
ER must pre-fund expenses incurredER must pre-fund expenses incurred
prior to deductionsprior to deductions ER cannot recoup account deficitsER cannot recoup account deficits
when an employee leaveswhen an employee leaves
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FSA EmployeeFSA Employee
ConsiderationsConsiderations EE pays for qualified expenses withEE pays for qualified expenses with
pre-tax dollarspre-tax dollars
EE has access to the entire yearsEE has access to the entire yearscontributions if neededcontributions if needed
Debit cards have made it moreDebit cards have made it more
convenientconvenient Use it or lose it rule appliesUse it or lose it rule applies
EE has to track receipts to justifyEE has to track receipts to justifyexpensesexpenses
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AdministrationAdministration
Many health Carriers are developingMany health Carriers are developingqualified HDHPs and are onlyqualified HDHPs and are only
beginning to offer the administrationbeginning to offer the administrationfor the HSA/HRA Accounts.for the HSA/HRA Accounts.
There are several TPAs who areThere are several TPAs who are
already offing HSA/HRAalready offing HSA/HRAadministration. Costs range from $3-administration. Costs range from $3-
$11 per participating EE per month$11 per participating EE per month
with start up fees ranging from $0-with start up fees ranging from $0-
1200.
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Changes to COBRA
On Federal Level it applies to employers ofOn Federal Level it applies to employers of20 or more.20 or more.
Law provides 65% subsidy for AEIs whoLaw provides 65% subsidy for AEIs whowere involuntarily terminated betweenwere involuntarily terminated between9/1/08 and 12/31/09 (income limits apply).9/1/08 and 12/31/09 (income limits apply).
NYS has passed legislation to allow AEIsNYS has passed legislation to allow AEIsto elect for employers of less than 20.to elect for employers of less than 20.
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Changes to COBRA (contd)
Employers must notify AEIs by 4/18/09 ofEmployers must notify AEIs by 4/18/09 ofthe subsidy.the subsidy.
AEIs who became eligible between 9/1/08AEIs who became eligible between 9/1/08and 3/1/09, but did not elect, must beand 3/1/09, but did not elect, must begiven a special Open Enrollment effectivegiven a special Open Enrollment effective3/1/09.3/1/09.
AEIs who became eligible between 9/1/08AEIs who became eligible between 9/1/08and 3/1/09 and are still on COBRA beginand 3/1/09 and are still on COBRA beginpaying less effective 3/1/08.paying less effective 3/1/08.
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Changes to COBRA (contd)
Effective 3/1/09 employers begin billingEffective 3/1/09 employers begin billingAEIs 35% of COBRA Premium, but remitAEIs 35% of COBRA Premium, but remit100% to insurance carrier.100% to insurance carrier.
Stimulus counts COBRA premium to beStimulus counts COBRA premium to beinclusive of optional 2% fee.inclusive of optional 2% fee. Employers get reimbursed by subtractingEmployers get reimbursed by subtracting
their 65% of COBRA premium on line 11their 65% of COBRA premium on line 11and 12 of the new IRS 941 form.and 12 of the new IRS 941 form.
Subsidy continues for 9 months fromSubsidy continues for 9 months fromCOBRA effective date or 3/1/09 (whichCOBRA effective date or 3/1/09 (whichever is more).ever is more).
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Some Unanswered
Questions What is involuntary termination?What is involuntary termination?
What if an AEI becomes eligible for otherWhat if an AEI becomes eligible for other
group coverage that is more than subsidygroup coverage that is more than subsidyrate?rate?
What if 941 is filed before premiums areWhat if 941 is filed before premiums arepaid?paid?
What about pre-existing conditionWhat about pre-existing conditionexclusions?exclusions?
What about Good Faith COBRAWhat about Good Faith COBRApayments?payments?
EBSA to produced model notices onEBSA to produced model notices on
