HSA, HRA and FSA Compared

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What is a fully-funded health plan?

A fully-funded health plan is one where the insurance carrier assumes all the risk in exchange for a monthly premium. The carrier pays all claims on the plan, and services the plan’s administration. The main advantage of a fully-funded plan is the employer knows exactly what the plan is going to cost them. The downside of a fully-funded health plan is when benefits go unused, the employer does not get any money back.

What is a partially-funded health plan?

Partially-Funded Plans (aka Level-Funded) are a variation of a Self-Funding and allows small employers to take advantage of all the cost saving and benefit design features of a self-insured plan, however, they share the risk with one of our top national carriers. The premiums for shared funding plans are generally much lower than fully insured plans. An employer may save even more by implementing wellness programs into the benefit strategy.

Following are employee benefit plan options designed to save both employers and employees money on healthcare and premiums.  The plans are similar in some ways, but also vary, each having unique advantages and savings opportunities.  The interface feature of our all-in-one online benefits management system makes it extremely easy to add and manage these programs to your benefit offering, including administration and compliance.

Health Savings Account (HSA)

A Health Savings Account combines a high deductible, lower premium group health insurance plan (HDHP) with an employee owned, interest earning savings account. Both employer and employee can contribute, with pre-taxed dollars, to the savings account. This effectively reduces the employee’s taxable income as well.  Tax-free withdrawals are used directly by employee to help fund the deductible and other qualified medical expenses (including prescription, dental, and vision related healthcare).  Any unused contributions can roll-over to the next year, and the HSA is portable and stays with the individual, even when that person changes employers.  For all qualified medical expenses see See IRS Publication 502.

Health Reimbursement Arrangement (HRA)

A Health Reimbursement Arrangement pairs a high deductible, low premium health insurance plan (HDHP) with a tax-favored savings account to cover the high deductible.  The HRA is funded by the employer and money is distributed only when a claim is incurred, typically for co-pays and other qualified expenses submitted by the employee, prior to the deductible being met.  HRA contributions are not considered income to the individual.  This type of arrangement helps both the individual and the business owner.  The individual gets financial assistance paying medical bills and the employer only pays money when a claim is incurred, plus gets a business deduction.

Flexible Savings Accounts (FSA) (Section 125 Plan)

A Flexible Spending Account is a tax-favored savings account funded solely by the employee through regular pre-tax payroll deductions. The funds can be withdrawn, tax-free, to pay for eligible medical, dental, vision, prescription and dependent daycare expenses. Employees elect how much they want withdrawn from each pay period. By participating in a FSA, an employee always has cash to pay for these expenses, and as an added benefit, their taxable income is reduced which also increases the percentage of pay they take home.  One disadvantage of using an FSA is that funds not used by the end of the plan year are lost to the employee, known as the “use it or lost it’ rule.  In 2021, the maximum allowed per employee in a medical flexible spending account is $2750 per plan year.

What is the Marketplace?

The public health insurance Marketplace (also referred to as an “Exchange”) is where you can purchase health insurance (also known as Obama Care) for you and your family. A plan from the marketplace is considered a comprehensive major medical plan and also contains the essential health benefits (see below) as established under the Affordable Care Act (ACA) law.

The essential health benefits are as follows:

• Ambulatory patient services
• Emergency services
• Hospitalization
• Maternity and newborn care
• Prescription Drugs
• Mental health and Substance Abuse disorder services
• Rehabilitative and habilitative services and devices
• Pediatric services, including oral and vision care
• Preventive and wellness services, and chronic disease management

Health Maintenance Organization Or HMO

An HMO offers lower premiums and a significant savings on routine and preventative healthcare. However, this type of health plan requires you to appoint a primary care physician and to use doctors and facilities that are affiliated with the HMO. Thus, if you use healthcare service providers outside of the HMO, there is a good chance those charges won’t be covered by your policy. But, the great thing about an HMO is that the only charges you incur, outside of your premiums, are co-pays for doctor’s visits and other services such as procedures and prescriptions.

Preferred Provider Organization Or PPO

A PPO will save you money on services if you use the preferred providers within the network. Keep in mind that deductibles must be met on this plan before some services will be covered. The good thing about a PPO is they generally will allow a certain amount of services annually outside of the deductible with a small co-pay, and most often the PPO has a large network with quality care providers and excellent prescription drug coverage.

Point of Service Plan or POS

POS plans combine features of HMOs and PPOs. Most POS plans require members to choose a primary care physician from within the POS network, but allow them to use out-of-network specialists with a referral from a primary care physician. Co-payments will be higher for out-of-network services.

Health Savings Account (HSA)

An HSA is a tax-advantaged bank account tied to certain high-deductible health plans. It allows you to use tax free dollars to pay for allowable health expenses, such as copays, prescription drug costs and more.

Wellness Benefits

Most insurers include wellness benefits in their comprehensive coverage, designed to improve lives and keep members healthy.  Your plan from the Marketplace will generally include services like preventative screenings, free or discounted gym memberships, diet advice, disease management, telehealth, and much more.