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July 02, 2002 at 08:00 PM
NU Online News Service, July 2, 2:15 p.m. – Hewitt Associates L.L.C., Lincolnshire, Ill., a benefits consulting firm, says the new Internal Revenue Service guidelines for defined-contribution health plans should encourage more employers to try the defined-contribution approach.
Employers who sponsor defined-contribution health programs usually provide high-deductible indemnity insurance to protect the employees against catastrophic medical expenses, then set up and fund “personal care accounts” to give employees control over some cash that they can use to pay ordinary medical expenses.
The new IRS guidelines state that employers can fund “health care reimbursement arrangements,” or personal care accounts, and let the unused balances stay in the HRAs from one year to the next without either the employers or the employees paying income taxes on the HRA contributions or the HRA assets.
To avoid creating federal income tax headaches, an employer must fund the accounts entirely with its own money.
