Your group health clients may think that setting up a health savings account program is a no-brainer.
Thanks to media coverage, statements by politicians and insurance company advertising, HSAs and HSA tax breaks are starting to get employers’ attention. Some employers may think that HSA programs will be even better than their current Section 125 plans.
While this may be true in a small percentage of cases, the vast majority of employers will still be better served with a Section 125 plan or a health reimbursement arrangement.
Education is the key to making an informed decision about whether to go with an HSA, an HRA or a Section 125 flexible spending account.
In a nutshell:
A HSA offers attractive tax breaks, but the HSA program law requires employers who want to offer HSAs to buy high-deductible health insurance and give employees control over the assets in their HSAs.
A HRA also offers tax breaks, gives employers control over personal account assets, and lets employers choose between providing high-deductible health coverage and coverage with lower deductible levels. But the tax breaks are not quite as attractive as HSA tax breaks, and employers have to provide all of the account contributions themselves.
Section 125 plans are better established and better understood. FSAs offer some tax breaks and coordinate nicely with all types of health coverage, but employees who fund the plans face the possibility they might lose their share of plan assets at the end of the year.
Be careful not to let the excitement surrounding HSAs cause you or your group health clients to make hasty decisions. You should help group health clients take their overall business development strategy into account when analyzing HSAs and other options.
For some employers, HSAs and the high-deductible health insurance plans that go with HSAs may be a great fit.
Other employers will hesitate to implement an HSA plan because of the additional work and coordination costs associated with switching from their current plan. Some employers also will worry about the possible elimination of co-pays and other changes to their benefit structures.
Still other employers might decide that setting up a HRA or a Section 125 plan is a better way to give employees a stake in holding down health care costs.
Lets take a look at 2 scenarios.
Scenario 1: John Doe’s factory currently has a Section 125 plan and is considering HSAs.
My recommendation: Doe should stick with the Section 125 plan.
Why? Removing the Section 125 plan will feel like a takeaway to employees, as they will lose the tax savings earned by deducting their dependent care and transportation expenses. In addition, without the Section 125 plan, the employees will no longer be able to pay their health insurance premiums with pre-tax dollars.