Most employers and even a lot of benefits manager and their consultants/brokers are hesitant to implement a Consumer Driven Health Care Plan (CDHC) which includes a Health Savings Account (HSA ). Many have been told to implement a Health Reimbursement Arrangement (HRA ) first. What should you do?
Employers are faced with rising health care costs, upset employees, and a lot of confusion. If you can get the employer to focus on achieving long term health care cost containment; then the CDHC Plan will be a success. Another major factor is the ability by both the employer and the employees to save taxes by participating. By allowing employees to contribute pretax to a HSA even the lowest paid employee will save. Let's take a look at the following example:
Suppose an employee who is single with one tax exemption earns a minimum wage of $7/hour or about $15,000 a year. He decides to contribute $ 1,000 forHSA expenses like premiums, deductibles, etc.
|After Tax $
With no HSA
|Pre Tax $
|Annual HSA Expenses Paid||0||$-1,000|
|Federal Income/ Social Security/ State Taxes||-$2,800||-$2,550|
|HSA Expenses paid out of spend able pay||-$1,000||0|
|Remaining spend able pay||$11,200||$11,450|
|Increase in spend able cash||$250|
Even the lowest paid employees are in a 25% tax bracket ( Federal, State, Social Security, Medicare) and will on average save $250 on the $1000 contributed.
The employer will on average save $100 on the $1000 contributed and will save as a result 10% in taxes ( Social Security, Medicare, SUTA, FUTA, Workers Compensation).
So both the employer and the employee save taxes. You can prove this to employee and employers by using a Tax Savings Calculator.
Anyone can now access EBIA's Tax Savings Calculator for free. Simply visithttp://www.ebia.com/static/publications/calculator.html and click on the access link. We encourage employers, service providers, and other organizations to place the above link to this Calculator on their websites. I would also use some type of Tax Savings Calculator when I am selling employee worksite benefits including voluntary insurance plans.
Eleven Easy-to-Follow Steps to Implement a CDHC Plan with a HSA -
I am positive that most of you have thought about what are the crucial steps to implement true cost containment which includes a HSA . Many employers have been told to put in a Health Reimbursement Arrangement (HRA ) first. Many are confused about the requirements of having a High Deductible Health Plan (HDHP) in the Plan design. Here are the steps to follow to implement a CDHC Plan with either a HSA or a HRA :
1. Become an Expert . Every employer wants to use an expert (whether you are the in-house Benefits Manager or a Consultant/Broker) so you need to become one. Proceed immediately to Step 2.
If you do not want to become the Expert, then:
Find an Expert or experienced Consultant or ask your current Medical/Section 125 administrator for a recommendation about who knows about HSA s/HRA s. A Consultant or entity that has implemented a CDHC Plan with a HRA in the last two years has the experience needed. Adding a HDHP, a HSA , and linking them to a FSA is not that hard.
2. Buy a Kit or package that has the forms, materials and documents that you need. There are several lawyers, law firms, and consulting firms that have developed such a Kit. Go to www.hrconsultinggroup.com and see what a Kit looks like. Search the Internet or go to the major Benefits publications (we recommend Employee Benefit News- go to www.benefitnews.com , select SourceBook, select several topics like HSA , HRA , Flex, or even Comprehensive Benefits Consulting Services, etc..) and find the case studies and plan designs on HSA /HRA s and on Consumer Driven Health. Attend a Web conference, local meeting, or national conference on these topics.
3. Ask the Consultant, Benefits Attorney, or your Medical/Section 125 administrator if the plan designs, forms, materials, and documents they already have (or from the Kit or package you have) will work to implement a CDHC Plan with a HSA /HRA .
Typical goals might be:
- Reduce the annual health care cost increase from 14% to 5% in the next 12 months.
- Improve communications to change employee perceptions and enhance the perceived value of the benefits offered.
- Increase employee awareness of health care options, education, and costs via the Internet, administrator education, group meetings, and newsletters in the next 4 months. Gauge the effectiveness of such efforts by the use of surveys or focus groups.
- Offer more choice to improve employee satisfaction. Add new and more benefits that employees will better appreciate and value.
- Give employees greater responsibility for health care decisions through defined contribution approaches.
- Focus internal resources on functions most critical to cost and satisfaction, while considering outsourcing for less critical functions.
- Look at outsourcing more of the benefits education and administration to reduce costs by 10+% versus internal staff resources. Justify outsourcing by focusing on Return on Investment (ROI).
Design your CDHC Plan to accomplish those goals. Make the Consultant and Medical/Section 125 administrator you have selected put in writing that the plan design will accomplish those goals. Set up criteria and benchmarks to measure your progress to meeting those goals.
5. Decide if you want to offer the HRA as a standalone plan, linked to a FSA , or in conjunction with a HSA with a High Deductible Health Plan. Most employers want to start immediately and not wait until the next open enrollment period several months from now.
Decide if the HDHP will replace all your existing medical options or just be a new, additional benefit choice.
You might want to answer the following questions:
a. First day of plan year is:
b. Last day of plan year is:
If the plan is new, is there a short plan year? ( ) No; ( ) Yes, beginning on:
c. What type of REIMBURSEMENT benefits are provided by the plan?
( ) Medical reimbursement Section 213d
( ) Over-the-Counter Drugs/medicines Section 213d
( ) Premiums for Long Term Care insurance
( ) Other- (please describe in detail)
d. What are the age and service requirements for participation in the REIMBURSEMENT portion of the plan?
( ) Age 21
( ) Age 21 and ( ) years of service
( ) Age 21 and ( ) months of service
( ) ( ) months of service
( ) ( ) years of service
( ) No eligibility requirements
e. What is the entry date?
( ) First day of the plan year following
( ) First day of the plan year preceding
( ) First day of the month following
( ) Same day
( ) Two entry dates: ( ) ( )
( ) Four entry dates: ( ) ( ) ( ) ( )
f. Are any employees excluded from participation?
( ) Yes ( ) No
If yes, which employees are excluded from participation?
( ) Union employees ( ) Leased Employees
( ) Non-resident aliens
( ) Other: ( )
g. Are part-time employees excluded from the plan?
( ) Yes ( ) No If yes, how many hours per week must an employee work in order to be eligible to participate in the plan? ( )
6. Find a qualified administrator by asking your Consultant, Benefit Attorney, Medical/Section 125 administrator. Consider doing self administration and its Return on Investment (ROI). Call (888) 438 9445 and ask for a free list of Qualified Administrators.
If they do not have a HDHP; consider looking at partial or full self funding of your medical plan so you can offer at least a $1000 single/$2000 family deductible plan. You should only consider some form of self-funding if you have at least 50 employees and your Medical administrator can provide aggregate/specific stop-loss insurance to protect against large claims exposure.
Decide if you want to offer these new plans as subject to ERISA. Or decide to offer the HSA plan as not subject to ERISA rules and requirements. Most employers will decide on not being subject to ERISA.
7. If you cannot offer a HSA due to the lack of a HDHP in your area or due to State requirements; consider doing some type of CDHC Plan with an HRA (funded with employer contributions pre-tax) with a FSA (funded with employee pretax contributions).
Sign contracts, get it in writing, and begin. OR
9. If you can offer a HDHP and a HSA ; ask your Consultant or medical/Section 125 administrators to find a qualified trustee/custodian. Any bank, credit union, insurance carrier, approved IRA/MSA record keeper usually is a qualified trustee/custodian. There is a list of non-bank trustee/custodian on the IRS website.
Ask your Consultant, medical/Section 125 administrators if they can work with that trustee/custodian. Ask the trustee/custodian if the forms, materials, and documents they already have (or from the Kit or package you have) will work to implement a HSA /HRA .
10. Select simple, easy to understand investment choices for the funds invested in the HSA and require that the trustee/custodian, Consultant, or medical/Section 125 administrator do the communication of the investment choices to avoid ERISA requirements.
11. Negotiate fees for enrollment, education, and administration done for your plans. Ask your Medical/Section 125 administrator that if you do the enrollment, education or provide the forms, materials, and documents (from the Kit or package you have), will that reduce the fees?
Sign contracts, get it in writing, and begin! It should be that simple.
Rob J. Thurston, President of the Human Resources Consulting Group, has been a national speaker and noted author on HR consulting and systems development since 1981. He has implemented and designed some of the largest selling employee benefits software systems nationwide while part of a international brokerage firm, a national administration and as a consultant.He has available at no cost or obligation a comprehensive listing of HSA ,HRA , Debit/Credit Cards, software, and consulting firms providing advanced technology systems for benefits enrollment, communication and administration. Please request this list by calling Mr Thurston at (801) 765-4417 ,
website www.hrconsultinggroup.com ;
1202 E. Dover Dr.
Provo, UT 84604.