Consumer Driven Healthcare
Consumer Driven Healthcare plans encourage employees to make more cost efficient healthcare decisions. This lowers the employer’s insurance cost while providing a reasonable level of coverage for more severe medical conditions. CDH plans make use of Health Savings Accounts (HSA) and Health Reimbursement Accounts (HRA).
Health Savings Account (HSA)
 HSA’s are individually owned savings account, with similar features to an IRA or 401(k) plan. The funds would be used to pay for the qualified medical expenses on a tax free basis.
An underlying High Deductible Health Plan is used in conjunction with an HSA. The employee controls the money and must contribute funds; the employer may or may not contribute funds into an HSA. Any amount withdrawn to pay for non-qualified expenses are subject to taxation and/or penalty tax from the IRS. Some HSA qualified expenses include, but are not limited to:
- Medical and dental deductibles and copayments.
- Routine physical and gynecological exams.
- Eye exams, eyeglasses, contact lenses, corrective Lasik eye surgery.
- Professional services, hospital services, medical treatments.
- Dental services, laboratory exams/tests.
- Equipment and supplies.
- Over the counter medications, with certain restrictions.
For a complete list of “qualified medical expenses” covered by an HSA, please visit the www.irs.gov. Enter “502” in the Search Forms and Publications field.
Also, please visit our Health Savings Account FAQ.
Health Reimbursement Account (HRA)
Unlike an HSA, an HRA is an employer owned account. This account is normally used in conjunction with a high deductible plan and employees can be reimbursed for qualified medical expenses. The employer contributes the money to the account and this provides more control for the employer who determines the services to be covered, sets the contribution level and retains control over any unused funds.
Any amounts left over in an HRA account can be rolled over from year to year as long as the employer offers the program, participants remain enrolled, and they don't reach any established rollover maximums or account caps.
Summary Guide: HSA, HRA, FSA
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HSA
Health Savings Account |
HRA
Heath Reimbursement Account |
FSA
Flexible Savings Account |
Description |
Approved by Congress in 2003, they are actual bank accounts in employees’ names that allow employees to save and pay for medical expenses tax-free. |
Provides more control for the employer who may set the contribution level, determine services to be covered, and retain control over unused funds. |
Allows employees to pay out-of-pocket expenses for copays, deductibles and certain services not covered by medical plan, tax-free.Only option that allows employees to pay for dependent care tax-free. |
Employer Eligibility |
Employee with a qualified high deductible health plan. |
All employers |
All employers |
Contribution Source |
Employee and/or employer |
Employer only |
Employee or employer but not both |
Account Owner |
Individual |
Employer |
Individual |
Underlying Insurance Requirement |
High deductible health plan (HDHP) |
None |
None |
Minimum Deductible |
$ 1,100 single (2008)
$ 2,200 family (2008) |
No limits |
N/A |
Maximum Contribution |
For 2008, the maximum annual contribution is $2,900 for individuals who have self-only HDHP coverage and $5,800 for individuals who have family HDHP coverage. |
Typically set by employer |
Typically set by employer |
Permissible Use Of Funds |
Employees may use funds any way they wish. If used for non-qualified medical expenses, subject to current tax rate plus 10% penalty. |
Reimbursement for qualified medical expenses
(as defined by tax code). |
Reimbursement for qualified medical expenses
(as defined by tax code). |
Cash-Outs of Unused Amounts (if no medical expenses) |
Permitted, but subject to current tax rate plus 10% penalty (penalty waived after age 65). |
Not permitted |
Not permitted |
Year-to-year rollover of account balance? |
Yes, may roll over to use for subsequent year’s health coverage. |
Limited
(Taxable beyond a defined amount.) |
No.
Use it or lose it. |
Does the account earn interest? |
Yes |
No |
No |
Portable? |
HSA owned by individual: portable year-to-year and between jobs. |
Limited: Ex-employee may have access at employer’s discretion. |
Employee forfeits balance at end of year and upon termination. |
This comparison is intended as a summary only. Please see plan document for complete explanation and IRS limitations.
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AxisPointe, Inc.
The Waterview Plaza
2001 Rt. 46, Suite 504A
Parsippany, NJ 07054
(T)973.299.0022
(F)973.299.0097
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