Benefits Benefits
Deciphering HRAs, HSAs, HDPs and FSAs
Consumer-directed health plan options are complex, but debit cards provide simplification
By Len Strazewski
Have you memorized all the rules for Health Savings Accounts (HSAs), Health Reimbursement Accounts (HRAs) and Flexible Spending Accounts (FSAs)? Can you explain why health benefits experts believe they will save your clients and their employees money and encourage smarter health care choices?
If you can, that’s a good start, but if you want to market consumer-directed health plans, you’ll need to learn lots more about the regulations behind these popular new options, the differences among them and the technology that supports their complex administration.
It’s not a one-time product sale. According to employee benefits experts, even after you have persuaded the client’s executives to offer the account-based programs, you will still need to help your clients choose administrators and other support vendors and help them communicate the plans to employees.
Hewitt Associates, a human resources and employee benefits consulting company in Lincolnshire, Illinois, recently released an HSA Discussion Guide for Employers and Employees that is designed to clarify the pros, cons and differences among the consumer driven health plan (CDHP) options.
The differences are striking, the guide notes.
“The rules around these plans are complex and not often intuitive. Employees will not only need to understand the rules in order to use the plans, they will need to understand them in order to feel comfortable electing a plan that may be fundamentally different from their current plan,” the guide says. “Employers that want to encourage enrollment in an HSA know they need very clear and robust communication so that employees will be comfortable making the switch.”
Should your employer clients offer HRAs or HSAs? That’s probably the first question.
The two plans are similar but different enough that employers will need to be guided carefully. An HRA, the Hewitt guide notes, is an employer-sponsored plan that may be designed with vesting requirements like a retirement account and may be forfeited when employees terminate employment. It does not have to be linked to a High-Deductible Health Plan (HDHP).
HRAs do not have to be funded with cash—a bookkeeping entry on the business’s balance sheet will do—but only employer money can be contributed up to a level set by the employer. HRA funds can be used to pay the premiums associated with a high-deductible health plan, if there is one, as well as eligible medical expenses.
An HSA must be linked to a HDHP and can receive contributions from both an employer and employee, but the contributions must be made in cash and deposited to an employee-controlled account. Contribution limits are set by the tax code, not by employer fiat, and cannot be forfeited.
HSAs do have some limitations. HSA participants cannot also have a health FSA, though HRA participants can, and can take advantage of the extra tax advantages of pre-tax funding of some health services on an annual basis. HSA funds can be used to pay COBRA or retiree health insurance premiums, but not the premiums for a HDHP.
Health FSAs, which also can stand alone without a HDHP, can be used to pay eligible medical expenses as determined by a separate section of the tax code—as well as employer health plan premiums on a pre-tax basis through a cafeteria plan. However, FSAs have annual time limits so employees must use their dollars or lose them, and they cannot be used later to pay retiree health insurance premiums.
Though each of these plans is based on an employee-managed account, administration varies and most employers will not want to self-administer claims made on these accounts. Most will choose one of the large health plans with a CDHP program, a local bank or financial service vendor, or a third-party administrator that can provide automated administration and debit cards that simplify payment from employee accounts.
Debit cards are hot
Debit cards are the hot new tool in CDHP and FSA administration, and employers may want to negotiate directly with an administration vendor that can provide a single debit card system that can support all of their account-based benefit programs,
Among the leading TPA and CDHP technology vendors are Evolution Benefits in Avon, Connecticut, and Metavante in Milwaukee, Wisconsin.
In March, Evolution Benefits was recognized as the Best CDHP Card Program in the Paybefore Awards at the Prepaid Card Expo in Las Vegas. The Paybefore Awards were created in 2006 to recognize achievements in the consumer-driven health industry.
Technology and administration are among the most difficult issues to address with clients—and they are one of the most important ways agents and brokers can bring savings and simplification to employee benefits plans, according to Kevin Blank, executive vice president of Evolution Benefits, which provides debit card technology to more than 250 TPAs.
“The debit card has really become the central administrative component of CDHPs,” says Blank. “In order to encourage employee participation and efficient use of an HRA or HSA, employers are trying to make using the accounts as easy as possible. Debit cards allow employees to use their account funds right at the point of sale just like a credit card and eliminate the need for after-the purchase reimbursement with either paper or online forms.”
Blank says agents and brokers also need to discuss with their clients how CDHPs and the administrative technology overlap with other uninsured benefits such as medical FSAs and pre-tax salary deductions for transportation expenses.
“Industry statistics indicate that there are about four million to five million HSAs and four million to six million active HRA accounts—but more than 20 million FSAs,” he says. “Among our own clients, about one quarter offer their employees multiple account products. Most employers offer FSAs and may already be using debit cards for FSA administration. As you discuss CDHPs with these employers, it’s important that their technology can support multiple account programs so it can provide a seamless transition and employee choice without the need for multiple cards.”
Progressive Benefits Solutions LLC (PBS) in North Haven, Connecticut, is an employee benefits brokerage that serves as a retail distributor of the Evolution Benefits “Benny Card” and works with property/casualty agents in setting up CDHPs for their clients. PBS has partnered with Evolution Benefits for about three years.
PBS consultant Ryan Ortello says the technology’s ability to stack the administration of several benefits in a single card adds to the value of the technology and contributes to the overall cost savings.
“Our experience with introducing a client to the use of the card is always driven first from the perspective of the benefits and cost savings potential of integrating CDHP pre-tax alternatives with current health care plans,” he says.
“Then we position the use of a debit card to facilitate and enhance the accessibility to a participant’s other pre-tax funds. We have demonstrated on numerous occasions that we can save clients annually up to 30% off their existing health care costs,” Ortello says.
It’s a lot to learn and plenty to discuss with your clients, but if they are eager to reduce costs, CDHPs probably have to be on your agenda—along with all their myriad details. *