Consumer Driven Health Care are tax-advantaged plans that offer individuals, families and businesses unprecedented control over their health care spending. They work by reconnecting the consumer with the actual costs of their medical care, offering true entitlement, and are no doubt the best, most affordable and most comprehensive health insurance plans on the market.
The more traditional, more common third-party payer system – like PPO and HMO plans – offer no incentives to consumers to help curb costs of medical care. Co-pays and cost-sharing insulates the consumer from the true cost of the medical care being received.
With a CDHC plan, the individual patient is empowered to acknowledge the cost of services consumed and to weigh the alternatives in making decisions towards their health care spending. Consumer driven plans -- which combine an affordable high deductible health insurance policy (HDHP) to cover major medical expenses with a tax-exempt savings account – offer financial incentives to consumers to pursue the best of price and service, and forgo unnecessary care. They also offer incentives to save for future medical care since unused funds in the savings account roll-over year-to-year, earning tax-deferred interest.
CDHC plans will provide the same amount of coverage or better than an more expensive plan with a lower deductible and pre-paid benefits. Premiums can be reduced from 20-30%/monthly by switching to a qualified plan.
CDHC plans can be delivered through Health Savings Accounts (HSA) and Health Reimbursement Accounts (HRA). Please continue to learn more about these methods of CDHC.
HEALTH SAVINGS ACCOUNTS
Why should I get an HSA?
Before an HSA can be established, a qualified HDHP must be in place. The Internal Revenue Service (IRS) determines the guidelines for a qualified HDHP each year. The current requirements of an HDHP are as follows:
An HSA participant is able to contribute funds up to the IRS contribution limit. An additional catch-up contribution is available to individuals over the age of 55. The current contribution limits are as follows:
What are the advantages of an HSA?
- Contributions deposited into the account are 100% tax deductible
- Account is used to pay for your various medical costs (i.e., deductible, co-insurance)
- Funds roll over from year to year, and funds used after age 65 are able to be used tax-free for eligible medical expenses or at the normal tax rate for any other reason
What are employer-sponsored Health Savings Accounts (HSAs)?
An employer-sponsored Health Savings Account (HSA) combines a high-deductible health insurance policy with an employee HSA, where you, the employer, your employees and/or both can set aside funds to cover qualified medical expenses.
How do employer-sponsored HSAs work?
You must first set up a high-deductible health insurance policy for your employees. Since the HSA uses a high-deductible policy, you can slash your health care bottom-line by as much as 30-60%. You can then use all or a portion of those savings to establish tax-free HSAs for your employees. Unlike the HRA, where only employers can contribute funds, the HSA offers the flexibility to allow you, the employer, your employees, or both to fund the account. The HSA is considered portable – which means any funds that accumulate in the account belong to the employee.
The concept of HSAs combines an affordable qualified HDHP and a tax-favored HSA. The combination results in savings through lower healthcare premiums and a reduction in taxable income. The HSA grows tax-free, and if the HSA funds are used for eligible medical expenses, the account holder never pays taxes on those funds.
How do HSAs work?
To open an HSA you must first have a qualified individual or family high-deductible health insurance policy. All or a portion of the savings you’ll realize on your monthly policy premiums can then be invested, tax-free, in the HSA. The money that accumulates in the account rolls-over year-to-year (there is no “use it or lose it” policy), earning tax-deferred interest. You can make tax-free withdrawals at any time – using an HSA debit card to cover qualified medical expenses.
HEALTH REIMBURSEMENT ACCOUNTS
What are Health Reimbursement Arrangements (HRAs)?
Health reimbursement arrangements (HRAs) are employer-sponsored health spending accounts that allow employees to accumulate funds to cover their health care expenses. These arrangements are exclusively employer-funded and you, the employer, define upfront how much you can afford to set aside for each employee.
How do HRAs work?
You, the employer, establish an HRA on behalf of an employee and allocate a set amount of money that you will contribute each year. Funds accumulate in the HRA tax-free and are then used to reimburse the employee for qualified medical expenses such as health insurance premiums, routine medical bills, deductibles, and prescription drugs. You also have the option of pairing your employee HRA with a high-deductible health insurance plan. Your employees can use the HRA funds to cover the deductible. If funds remain in the HRA at the end of the year, they are rolled over – earning tax-deferred interest -- enabling your employees to “save” for future health expenses. It should be noted, however, that the HRA account is not portable for the employee. If they leave, unused funds in the HRA return to the employer.
Why should I offer HRAs?
The greatest benefit of offering an HRA is that you, the employer, define what you can afford to pay for each employee’s health care expenses. Your bottom-line is no longer controlled by unexpected – and unaffordable – health insurance premium increases. With an HRA, you can slash your health care bottom-line by 30-60%. For you employees, they will benefit from a comprehensive health care plan that offers them unprecedented control over how, when, where and why their health care investment will be spent. Since unused funds roll-over year-to-year – earning tax-deferred interest – your employees have the option to accumulate and grow savings to cover future medical expenses.
