Dealing With the Rising Cost of Health Care

As we continue to see the cost of health care increase and outpace inflation, it is important for employers to make sure they have a health plan that is best for them.  Many changes have occurred in the employee benefit arena and it may be a good time to review your current situation and see if there is a better solution for you.  Today we will look at three basic options for health plans.

Flexible Spending Account (FSA).  This is an employee contribution type plan.  It is also known as Cafeteria Plan or Section 125 Plan.  It needs to be administered and this is typically done through an outside service.  Your employee can designate an amount of money they want to come out of their paycheck and go towards their benefit.  The benefit could be health insurance, dependent care, etc.  If the employee does not use all of the money they have set aside, then they lose it.  It does not carry over to following years.

Health Reimbursement Account (HRA).  This is an employer contribution plan.  The employer agrees to put a certain amount of money away for the employee to be used for health care expenses.  If the employee incurs healthcare expenses, they can submit for reimbursement.  The plan can be designed to carry over unused benefits or the benefit can be “use it or lose it.” In order to keep the employer’s obligation limited, I recommend that you do not carry over unused benefits from one year to the next.

The employer and employee can share in the total costs by combining an FSA and an HRA plan.

Health Savings Account (HSA).  This is much like an IRA account but for healthcare expenses.  The employer and the employee can contribute to the account and get a deduction for the amount they contribute (annual contribution limits apply).  The account balance can grow and carry over to future years.  When the employee incurs healthcare expenses, they can pay for them with the HSA account.  In order to qualify for an HSA, one must have a qualified high-deductible health insurance plan.

Make sure to talk to your CPA, insurance broker or employee benefits expert to help find the best fit for you and your practice

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