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Consider Alternative Routes More business owners today are turning to Health Savings Accounts (HSAs) to provide employees with flexibility and control over their coverage. In fact, 35 percent of COSE survey respondents reported offering an alternative health care funding option, such as an HSA, Health Reimbursement Arrangement (HRA) or Flexible Spending Account (FSA). That’s up from 20 percent from 2008. Logan Clutch Corp. began offering HSAs to employees in January. Currently, the company owners and product line managers are taking advantage of the alternative funding solution. Lisa Logan, executive vice president, says managers Think of these plans as bank accounts that provide employees with unprecedented control over their earned health care dollars. will use their experience to educate other employees about the plan. “If we can give our staff a personal testimony and say, ‘We tried it. It’s O.K. Here is how it works,’ they might feel more secure,” Logan says. While there is some confusion concerning how these “alternatives” work, businesses are embracing these plans because they can give employees the perk of an insurance fund that is flexible, portable (they can take it with them if they switch employers), and capable of providing tax advantages. Still not sure how this could work for your company? Think of these plans as bank accounts that provide employees with unprecedented control over their earned health care dollars. They can spend it, or they can save it—but most important, employees will soon realize the true cost of health care and it won’t take long until they are more informed consumers. *COSE strongly encourages participants to consult with both their accountant and attorney to discover the best option for their business. Health Savings Account (HSA) Combines a qualified high-deductible health plan with a tax-advantaged savings account, allowing employees to save and pay for routine medical expenses with pre-tax dollars. Employees own their account and unused dollars roll over year after year. Who qualifies? Any individual covered by a qualified high deductible health plan (HDHP) who is not covered by other health insurance, Medicare, or is claimed as a dependent. Health Reimbursement Arrangement (HRA) An employer funded account that provides reimbursement for specific employee and dependent medical expenses. Employees lose unused dollars when they switch employers. Who qualifies? Any employee that meets an employer’s health benefits eligibility criteria and are not enrolled in an HSA. Flexible Spending Account (FSA) Section 125 plans (the name refers to the section of the Internal Revenue Code) are also called flexible benefits plans or Flexible Spending Accounts (FSAs). These plans allow employees to save by paying for health insurance premiums, out-of-pocket medical expenses, and child-dependent care expenses with pre-tax dollars. The company saves by paying lower matching Social Security and Medicare contributions. However, all dollars placed in the account will be compromised if not spent by the end of each year. Who qualifies? Same as an HRA; however self-employed individuals are not eligible. 8 • COSE Update Special Insert • June 2009 (216) 592-2222
Compare Alternative Funding Solutions for Yourself Health Savings Account (HSA) Health Reimbursement Arrangement (HRA) Flexible Spending Account (FSA) Enacting Law/IRS Code Enacting Law: Medicare Modernization Act of 2003 IRS Code: Section 105 IRS Code: Section 125 Who Owns the Account? Eligible employee Employer Eligible Employee Who Funds the Account? Eligible employee, employer and/or other individuals on behalf of eligible employee Employer Eligible employee or employers How is the Account Funded? Deposited directly into account “Zero-balance account.” This is not a true account but an agreement or “IOU” by an employer to pay a portion of qualified medical expenses. Via payroll deduction; claims are generally paid as they are submitted by employee. Is There A Maximum Contribution Per Year? Individual limit increases from $3,000 in 2009 to $3,050 in 2010. Family limit increases from $5,950 in 2009 to $6,150 in 2010. No statutory limit. Simply an arrangement where employer pays medical expenses. No statutory limit. Employers generally set annual plan limit. Is It A Personal Account? Does It Accrue Interest? Yes Yes Yes Yes, tax free No No What Type Of Health Plan Is Required, If Any? The minimum deductible for individual is $1,150 in 2009 and $1,200 in 2010. The minimum for family coverage is $2,300 in 2009 and $2,400 in 2010. The maximum annual out-of-pocket amount for individual coverage is $5,800 in 2009 and $5,950 in 2010 and family coverage is $11,600 in 2009 and $11,900 in 2010. No requirements No requirements Can Funds Be Used To Pay For Non-Qualified Expenses? No. Funds used for non-medical expenses are taxed and/or penalized —Qualified expenses include more than medical. Funds may not be used for non-qualified medical expenses. No. Funds used for non-medical expenses are taxed and/or penalized. What Is The Tax Treatment? Contributions are 100% tax deductible. Funds spent on medical expenses are tax free for life. At 65, funds used to supplement income are tax-deferred. Funds used to pay for health expenses are not reported as income. Contributions are 100% tax deductible; funds spent on health expenses are tax-free (no rollover). Is There A “Catch Up” Provision? $1,000 can be contributed and rollovers will be permitted. No No Advantages • Affordability—lower health insurance premiums • Raises employee awareness of the costs of health care services • Tax advantages for employer and employees; account dollars and interest are 100% tax-free when used for eligible medical expenses • Portable—employees own the account • Savings/Growth Opportunity—gives employees their own account to pay for long-term health care costs, grows over time • Reduced insurance premiums to help stabilize annual increases • Gradually raises employee awareness of the cost of health care services • Tax-advantaged employer-funded accounts help pay for day-to-day expenses • Allows ‘employer pay first’ or ‘employee pay first’ plan designs • Competitive administration rates • Reduces taxable payroll by reducing your employees’ taxable income and reduced employer payroll taxes • Employees increase take-home pay • Start a Premium Only Plan (POP) at any time during the year •First-year tax savings are generally greater than the cost of plan implementation • Competitive administration rates COSE Offerings Six Plan Choices: • COSE HSA SuperMed Plus 1500 • COSE SuperMed Plus 2000/4000 • COSE HSA SuperMed Plus 2500/100 • COSE HSA SuperMed Plus 3000/100 • COSE HSA SuperMed Plus 4000/100 • COSE HSA SuperMed Plus 5000/100 —All have 100% preventive care coverage, not subject to deductible. All utilize the SuperMed Plus network of providers. • COSE HRA SuperMed Plus 1000/3000 • COSE HRA SuperMed Plus 2000/6000 • COSE HRA SuperMed Plus 2500/5000 • COSE HRA SuperMed Plus 3000/9000 —All have 100% preventive care coverage, not subject to deductible. All utilize the SuperMed Plus network of providers. • Premium Only Plan (POP) • Flexible Spending Accounts • Daycare (Child and Elder) Accounts • Adoption Assistance Accounts • Commuter Benefits Accounts COSE Services Provided By: HSA compatible insurance plans offered through Medical Mutual of Ohio; HSA accounts held by financial institution of employee’s choice Medical Mutual of Ohio FlexSave provide by Medical Mutual of Ohio The information presented is related to the 2009-2010 calendar year. cose.org/benefits June 2009 • COSE Update Special Insert • 9
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