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There are a multitude of insurance carriers offering employer sponsored health plans ranging from Health Maintenance Organizations, Preferred Provider Organizations and Points of Service plans. We at The Kent Group can offer advice and expertise to assist the employer group in selecting the plan that best suits there needs and budget. In addition to the standard fare, we have provided outlines on this web site for the newer HSA and HRA plans as well as a guide to Self Funding and Limited Medical Plans.
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What is an HSA? A Health Savings Account or HSA is a tax-exempt account created for the purpose of paying current and future medical expenses*. HSA’s can be set up by individuals or employers for each employee. The HSA must be used in conjunction with a qualified High Deductible Health Plan or HDHP. * Tax exemption only applies if the HSA is used for qualified section 213(d) medical expenses. What is a qualified High Deductible Health Plan? An HDHP is simply a high deductible health insurance plan. In order to be used with an HSA, the HDHP must have a deductible of no less than $1,050 for individuals and $2,100 for families. If you have individual coverage, the in-network out-of-pocket expenses required to be paid (deductibles, copays and coinsurance) cannot exceed $5,250, and for family coverage cannot exceed $10,500. These minimum deductible amounts and out-of-pocket limits are adjusted annually for cost of living increases. How is the HSA funded? The HSA can be funded by both the employer and employee. Up to 100% of the annual deductible for the individual or family can be contributed to an HSA. There are maximum amounts that can be contributed for an individual and for families. What are the HSA funds used for? The funds in the HSA can be used to pay the deductible, coinsurance and any qualified medical expenses not covered by your health plan. What is a qualified medical expense? It is an expense for medical care as defined by IRS Code Section 213(d). Examples of qualified expenses include: Prescription drugs, physician office visits, durable medical equipment and physical therapy. Benefits of offering an HSA for employers Reduced Premiums – Most employers should see a reduction in the monthly premiums they pay for their employees due to the increase in deductibles. Tax Benefits – Employers are not taxed on amounts contributed to employee’s accounts, provided the employee is an eligible individual, and these amounts are also not subject to withholding for income tax or FICA. This means the employer obtains a direct write off for the amounts paid for the health insurance premiums and for the HSA. HSA’s are deductible for self-employed individuals and partners of S-Corps. (IRS limitations may apply). Benefits of an HSA for employees Ownership – Employees are encouraged to spend their funds more wisely on their medical care and shop for the best value for their healthcare dollars as the HSA belongs to the employee. There are no “use it or lose it rules” like a Flexible Spending Account (FSA). Portability – An HSA belongs to employees and is completely portable. An employee can take the balance of the HSA with them when changing employers. Tax Benefits – The contribution to the HSA while the employee is an eligible individual is tax free. The employee can take gross deduction for any amount they contribute to the HSA. This directly reduces an employee’s taxable income. The HSA account is invested, and any gain on the investment is tax-free. Tax-free interest – If the money in the HSA account is not used it accumulates tax-free interest until retirement. Upon retirement, funds can be used for healthcare expenses on a tax preferred basis or withdrawn for any purpose and taxed as normal income. [ Back to top ] |
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What is an HRA? A Health Reimbursement Account or HRA is a tax-efficient way for employers to allocate money to employees to pay for qualified medical expenses. HRA’s can be set up by the employer for each employee. The HSA can only be funded by the employer. In no event can the HRA itself be funded by the employee. Up to 100% of the annual deductible for the individual or family can be contributed to an HRA. Employee’s can still pay a portion of the insurance premium (i.e. premium for dependent coverage) with pre-tax salary deductions. What are the HRA funds used for? The funds in the HRA can be used to pay the deductible. Coinsurance and any qualified medical expenses as defined by IRS Code section 213(d) not covered by the health plan. Examples of qualified expenses include: Prescription drugs, physician office visits, durable medical equipment and physical therapy. Do HRA funds carry over from year to year? Yes. Employers can not cash out these funds, but can continue to use them for qualified medical expenses and/or COBRA premiums. Benefits of offering an HSA for employers Reduced Premiums – Employers have more flexibility to manage healthcare costs by controlling their HRA contributions to employee’s funds. Tax Benefits – Employers are not taxed on amounts contributed to employee’s accounts, provided the employee is an eligible individual, and these amounts are also not subject to withholding for income tax or FICA. This means the employer obtains a direct write off for the amounts paid for the health insurance premiums and for the HRA. Benefits of an HRA for employees Ownership – Employees are encouraged to spend their funds more wisely on their medical care and shop for the best value for their healthcare dollars as the employees can roll the HRA over from year to year. There are no “use it or lose it rules”. Portability – An HRA provides your employee’s with a sense of ownership as long as they are employed by you, the employer. The employer can decide what extent an employee has access to unused dollars if they terminate employment. Tax-free interest – The employees accumulate interest in their HRA on a tax-free basis. [ Back to top ] |
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Self Funding of Medical Benefits
The Pro’s and Con’s of Self Funding Partially self funding employee benefits, allows the employer a greater say and infinitely more control over all aspects of their benefit program. Regardless, self funding is not a panacea. The advantages far outweigh the disadvantages. The following will outline same. Advantages Flexible Plan design is a key feature. Self funded plans fall under the jurisdiction of the 1974 ERISA Act in which partially self funded plans are governed by Federal mandates and not State mandates. This is especially advantageous to companies operating in multiple States who do not want to offer different medical plans in each State they operate in order to satisfy each State’s mandated benefits. The only mandates that a self funded plan has to follow are Federal mandates and laws. An obvious advantage to a partially self funded program is the opportunity to save money that otherwise would have been excess profit to the insurance carrier. A specific deductible is purchased that protects the employer from spending more than a predetermined amount on any one large individual claim. In addition, an aggregate limit is purchased that limits all the small claims under the individual limit to an amount governed by the monthly employee count of the group participants. Add the cost of administration and you are looking on average at one third of the total cost of an insured plan. These are called the “Fixed Costs”. Claims are in addition but are only paid as incurred and submitted for payment. Self funding involves the employer sharing the risk with the insurance carrier. As the employers own funds are being utilized to pay claims, the employer has access to month by month claims data. This data allows the employer to see where the excess utilization may be occurring and make annual benefit plan adjustments as deemed necessary. Furthermore, the employer enjoys the benefit of the insurance company’s negotiated physician and hospital payments’ schedule’s that afford deep discounts over standard repayment schedules. Computer access for both employers and employees is becoming routine. Employers can access eligibility, claims data, coverage information, payment records and much more. Employees can access theirs and their families claims history, claims payment history, order new ID cards and access a wealth of health related information to assist in a healthy lifestyle. Disadvantages The disadvantages to self funding are minimal, certainly as long as you are aware of them before the plan is implemented. Fully insured premiums are constant month by month altering only by the amount of employees covered in any one month. The “Fixed Costs” mentioned earlier are constant changing only by the number of employees covered. The claims cost, however, fluctuates. One month can be high and another month extremely low so the employer must have the resources available to fund such fluctuations. In most cases, claims on a mature, stable, group of employees are consistent. When aggregate stop loss insurance is purchased the insurance carrier is setting a maximum limit on all small claims under the individual specific stop loss. This aggregate is designed as a “sleep easy” so the employer knows what the maximum claim costs will be under the plan. The aggregate is calculated on a monthly basis according to the employee and dependent count and accumulates throughout the year for an annual maximum called the aggregate attachment point. The insurance carrier sets the attachment point 25% higher than the expected claims. The aggregate is not a target to hit, the farther away you are the better the claims experience under the plan. If the aggregate is hit, and subsequently exceeded, the employer will not receive a refund of the amount in excess of the aggregate attachment point until after the plan year ends and a claims audit has been conducted by the insurance carrier. This refund is normally delivered several months after policy year end. A self funded plan should be entered into with the complete understanding that the decision to self fund is made for the long term, at least three years. When ever a plan terminates the employer is obligated to pay administration fees and run-off claims. These are claims that are incurred prior to the policy ending or terminating but have yet to be submitted for claims payment. If an employer switched back to a fully insured plan they would be paying the new fully insured premium as well as the run-off claims and administration. Specific and Aggregate Stop Loss Insurance The individual stop loss (Specific) and the aggregate stop loss are both purchased on an “Incurred and Paid” 12/12 basis for the first year of the plan. This covers claims incurred and paid in the policy period which equates to nine months worth of claims as claims incurred but not submitted for payment at the end of the policy period would fall into the following year. The second year both stop loss contracts are renewed on a “Paid” basis. This broader contract pays claims incurred at any time in the first year and the second year but submitted for payment in the second year thereby picking up the run-off claims from the first year. Premiums for the second year contracts are higher but afford broader coverage. [ Back to top ] |
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Why it makes sense Finding reliable, entry-level workers and keeping them, takes more than a slightly higher hourly wage. Employee turnover in the part-time/entry level worker arena can cost a business a significant amount of money each year. They also want competitive medical benefits. Common features include guaranteed issue – no health questions, physicians office co-pay, no networks – see any physician and is portable. Limited Medical Plans help retain low income employees and contain employee benefit costs. [ Back to top ] |