Over the years, employers have been rethinking their approach to providing health benefits to employees. In a typical health plan, an employer pays for covered expenses incurred by its employees and their dependents directly through self-funding or through the purchase of insurance. This typical health plan structure does not provide any incentive for participants to control their health plan usage, and the employer has little control over the amount an employee spends on medical care.
Consumer driven health care (CDHC) is intended to change the typical health plan structure by shifting some of the responsibly to employees, the ultimate consumers of health benefits. CDHC is a term used to describe several mechanisms for providing health care, all of which encourage individuals to be actively involved in making health care decisions.
Health Flexible Spending Accounts, Health Savings Accounts and Health Reimbursement Arrangements are all forms of consumer driven health care. The chart below describes and compares some of the main features of these account-based CDHC alternatives. If you have questions about, or would like to discuss CDHC, please contact PR@BASusa.com.
|
Description |
FSA | HRA | HSA |
| Code section | Code section 125 | Code section 105(h) | Code section 223 |
| Who Can Create | Employer created. | Employer created. | Employee owned account, only available for employees with qualifying high deductible health coverage. |
| Individuals Eligible for Reimbursement | Employee, spouse and dependents, former employee continuing FSA on COBRA. | Employee, former employee, spouse and dependents. | Non-Medicare eligible individuals, business owners, spouses and dependents. |
| Excluded Person | S-Corp, LLC, LLP, partnership owners and spouses; sole proprietors, non-dependent domestic partners. | S-Corp, LLC, LLP, partnership owners and spouses; sole proprietors, non-dependent domestic partners. | Excludes Medicare eligible persons (cannot fund HSA but can continue to claim money already set aside in the account); non-dependent domestic partners. |
| Contributions | By employer, employee or both. Usually funded by employee through salary reduction agreement. | Only by employer. No salary reduction contributions permitted. | By any person on behalf of an eligible individual. |
| Contribution limit | Currently none. $2,500 beginning 1/1/13. | None required. Employers usually set limit below the annual deductible of the accompanying health insurance. | Same as limits imposed on qualifying HDHP. |
| Contribution availability for reimbursement | Full amount available at beginning of plan year, regardless of actual contribution. | Based on plan design. May be available at beginning of plan year or as earned on an accrual basis, depending on how plan is structured. | Only amount contributed available for reimbursement. |
| Qualifying Expenses | Most eligible unreimbursed Code section 213 medical expenses. OTC drugs must be prescribed. May not be used for long term care or health insurance premiums. Expense must be incurred during the plan year. | Most eligible unreimbursed Code section 213 medical expenses. OTC drugs must be prescribed. Employers may impose additional limitations. May be used for long term care and health insurance premiums if the employer allows. Employer sets terms of plan. Expense need not necessarily be incurred during plan year, but must be incurred after HRA established. | Most eligible unreimbursed Code section 213 medical expenses. OTC drugs must be prescribed. May be used for premiums for long term care insurance, COBRA, health insurance premiums when unemployed. May be used for non-medical reasons, subject to penalty and taxes (taxes only after 65). |
| Third party substantiation of expenses | Yes. | Yes. | No. Self substantiation of expenses allowed. |
| Carry over | No. Unused dollars forfeited at end of plan year. | Yes, based on plan design. Plan may be structured for carryover or for end of year forfeiture. May also be structured to allow retirees to spend down account if a carryover. These are optional plan design features. | Yes. Account belongs to the account holder. |
| COBRA | Yes. Generally only when positive balance in account at termination and through end of plan year (exceptions apply). | Yes. | No. Trust account owned by account holder. COBRA is offered for underlying HDHP. |
| Form 5500 | Yes if over 100 participants. | Yes if over 100 participants. | Perhaps, depending on contributions made to account. |
| Reimbursement order | FSA last, unless HRA document says otherwise. | FSA last, unless HRA document states otherwise. | Cannot have HSA and FSA that covers same expenses as HDHP. |
| Plan Document/SPD | Generally yes, SPD if subject to ERISA. | Generally yes, SPD if subject to ERISA. | May or may not apply depending on contribution arrangement. |
