Our blog today is the last installment in The Many Ways to Share Benefits Plan Costs series. The final topic is an explanation of health care spending accounts. In case you have missed the previous blogs in this series, please check them out:
- Part One: Payroll Deduction
- Part Two: Co-Insurance
- Part Three: Annual Deductibles
- Part Four: Prescription Drug Deductibles
To begin the discussion, a health care spending account (HCSA or HSA) is a plan where a pre-determined amount of money is provided to employees at the beginning of each year to cover their medical and dental expenses for the next 12 month period. An HCSA provides benefits coverage on the basis of defined contribution, rather than defined benefit.
Eligible expenses are reimbursed at up to 100% until the total annual HCSA benefit has been exhausted. If the employee’s expenses in one benefit year exceed their HCSA benefit amount, the employee must pay out of pocket for the remaining expenses. In this way, employees share in the cost of their expenses.
The employer is responsible for funding the HCSA. The employee has control over how they spend their benefit dollars, and may claim for health care and dental care expenses according to their needs and the needs of their family.
One advantage to the employer is the lack of annual renewal increases in an HCSA plan. Their cost per employee only increases (or decreases) when the employer makes the decision to alter the HCSA benefit amount. This results in more cost control for the employer.
Employees also have greater control with HCSAs. They have more claim flexibility than with a conventional benefits plan that operates according to specifically defined benefits. An HCSA allows employees to spend their funds on the expenses that they and their families actually incur, rather than being restricted to dollar limits or a more limited list of eligible expenses.
Health care spending accounts are not necessarily an “all or nothing” option. By including an HCSA as one part of their benefits plan, employers can potentially reduce the cost of their core benefits plan while still providing flexibility in the type of expenses covered for employees.
Additional cost sharing options when a benefits plan incorporates an HCSA include employee contributions towards the cost of life insurance or long term disability premiums, and employee contributions towards the cost of a scaled-down core health or dental benefit.
Many employers are including HCSAs strategically as one component in their benefits plans, rather than simply choosing between a conventional benefits plan and an HCSA. HCSAs are practical, cost-effective, and offer a wide variety of advantages to meet the changing needs of employers.
>> For more information on setting up Health Care Spending Accounts or customized benefits plans for your organization, please contact us!