Fighting higher premiums takes creativity. By combining a HDHP with and HRA/HSA combo an employer can save on healthcare premiums while lowering an employee's out-of-pocket burden. Guest author: Gina Marken
Featuring Guest Author Gina Marken, President of Sound Benefit Administration.
A few thoughts from Sandy Wood
Many employers don’t realize that they can offer an HSA-qualified medical plan with an HRA and an HSA. While it can be a little complicated, the upside is worth it.
One key to reducing the complexity is providing the administration of the HRA and the HSA through one vendor. That way as claims are submitted, the vendor provides reimbursement from the correct “silo” – HRA or HSA.
Want to get even more crazy? Offer an HSA-qualified medical plan, HRA, HSA and an FSA. Here’s a great blog from Gina Marken of Sound Benefit Administration. Yes, the math can be daunting. Just make sure you use a vender who knows the ins and outs, and you’ll have another benefits tool in your tool belt.
Fighting soaring health insurance premiums? Here’s a creative, out-of-the-box (even brilliant) strategy that just might make you a superhero with your clients: an ultra-high HDHP deductible with an HSA/HRA combo – yes, you heard me, combo. The mix means a lower premium for the employer, measurable upside risk and limited employee out-of-pocket liability – but the brilliant part is that the participant is still HSA eligible. Got your juices flowing?
How the heck does this brilliant idea work?
Picture this – using a single coverage participant:
The employee benefit is significant
Think about this for a minute, if the employee contributes anything through payroll deduction to their HSA bank account, they will be saving 25-30% in payroll taxes (Federal, Social Security and Medicare taxes). Let’s look at a couple of examples:
Contributes enough to HSA to cover minimum HDHP deductible
Contributes to HSA maximum
What? A $450 deductible? I haven’t seen one that low in years!
Why does this work?
Because the HRA is limited in scope (i.e. only reimbursing above the minimum HDHP deductible) the participant maintains their eligibility to contribute to their HSA.
The employer benefits too
You may be thinking, “Why wouldn’t the employer just contribute dollars to the employee’s HSA and let the employee deal with the rest of the deductible themselves?” Good question. Let’s use our example above and look at two employers with 10 employees on single coverage.
Employer A – Sets up an HDHP/HRA/HSA combo, single coverage example
Employer B – Wants to only spend the $4,250 that was calculated above as Employer A’s estimated liability, but wants to contribute first-dollars to the employee’s HSA accounts (no HRA included)
In Example A, the employee’s out-of-pocket liability is much lower and the employer’s bang-for-the-buck is much greater: the HRA/HSA combo has it in spades.
How would it work for families?
Family coverage means the employee must meet the first $2600 of the medical deductible (2017 HDHP minimum for family coverage). The HRA would reimburse the remaining family deductible[SW1] . The employee would be able to contribute the HSA maximum contribution limit for family coverage ($6750 in 2017) plus an extra $1000 if the employee is age 55 or over.
What’s the catch(es)?
While this is a great option to consider, there are a couple things to keep in mind:
Another potentially brilliant idea
Since we know any client with an HSA is going to need a Premium Only Plan (POP) in order to pre-tax employee HSA contributions, why not consider going all the way with a Flexible Spending Account? Here's how that might work: A Limited Health FSA will allow employees to put aside money to pay for dental, vision and non-deductible medical expenses. It would allow them to let their HSA bank balances grow while funding those other non-deductible types of expenses using the Health FSA. Go crazy and throw in a Dependent Care Account and the tax savings soar. A Flexible Spending Account already contains the Premium Only Account so no need for a stand-alone POP.
Page 4 of IRS Publication 969 details the various combinations of plans that are available to be combined with an HSA to preserve its eligibility and provide employer and employee benefits.
Oh, the variety of alphabet soup you can make when you work with the masters
There are many possible tools at your disposal when you have an expert partner in the alphabet soup of HSAs, HRAs, FSAs, POPs and COBRA. It’s all in knowing how to combine them to reach maximum cost savings and promote consumer-directed healthcare for participants.
Gina Marken is President of Poulsbo, WA based Sound Benefit Administration. Today, making the most of healthcare benefits means moving beyond traditional insurance plans. Gina and her staff at SBA are experts in the alphabet soup of HSAs, FSAs, HRAs, POPs and COBRA, integrating and managing these valuable supplemental programs to help employers and participants save time, effort and above all, money. Learn more at www.soundadmin.com.
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I love numbers. I'm a math geek. I read benefits industry articles and periodicals for relaxation (but, honestly, I'm still a fun gal). I also like to share what I've learned and you'll find it all here.