Consumer Driven Health Insurance

Renewing your health insurance used to be easy.

By now you’ve heard of “consumer-driven” health-care plans. At this time there are two versions showing promise: the Health Reimbursement Arrangement (HRA) and Health Savings Account (HSA). They are designed to lower health insurance costs by engaging employees to take vested interests in their own health-care expenses.

There are significant differences between how these plans work.

Employers are the owner of HRAs. The more successful HRA plans allow a portion of the unspent accounts to roll over from year to year as an incentive to the employees not to spend them. There are no requirements for which type of insurance you use with an HRA. The money that is not spent stays with the employers if employees leave.

Employees are the owners of their HSAs. Both the employers and the employees can fund this account. HSA funds can be used to help offset all medically related expenses, including a tremendous number of things that do not count toward the insurance deductible, such as dental and vision costs and even some over-the-counter medications.

To establish HSAs, employees must be covered exclusively by a High Deductible Health Plan (HDHP). The federal government has placed guidelines for deductibles and out-of-pocket maximums for these plans to be qualified. Since these plans have higher deductibles than most co-pay plans, there is usually a significant premium savings.

The concept is to place the premium savings in the tax-deductible HSA and use these dollars to pay your smaller expenses at the insurance company’s negotiated PPO discount while maintaining the insurance plan for major expenses. There are now many examples of the premium savings being large enough to cover most or all of the HDHP deductible.

HSAs can be opened through insurance companies, banks and credit unions. You can deposit up to $2,850 for an individual or $5,650 for a family into an HSA for 2007. Account balances roll over year to year.

HSAs are the only products that offer triple tax advantages; tax-deductible deposits, tax-deferred interest earned and tax-free withdrawals as long as they are spent on qualified medical expenses. Since the employees own their HSAs, there is a significant difference in how this money is spent. Imagine your employees all having vested interests in not spending their health-care dollars. This is why self-funded plans tend to benefit most.