A Defined Contribution Approach to Health Benefits
Health Savings Accounts ("HSA's") became permissible in January 2004. They have received a lot of attention because, unlike FSA's, contributions can be carried over from year to year. Both the employee and employer can contribute to the HSA on a tax favored basis. However, a number of conditions apply to HSA's (among other things, they must be linked to a high deductible health plan), which means plan design and administration of HSA's can be complex.
Unlike Flexible Spending Accounts (click for comparison), HSAs allow contributions to carry forward from year to year. Unlike Health Reimbursement Accounts, both the employer and employee can contribute.
Consultation
- Develop plan design and benefit provisions
- Prepare draft of Plan Documents and SPD for counsel review
- Design of employee communication materials
- Ongoing consultation regarding plan design and language
Administration
- Process participant enrollment and election information
- Preparation of initial report of salary deferrals by benefit type
- Process reimbursement requests
- Provide participants with explanation of claims
- Remit monthly premiums to insurance carriers
- Quarterly spending and annual account statements
- Maintain accounting of benefits paid to each participant
- Toll-free number to our customer service personnel
- Quarterly employer reports
- Form 5500 preparation
- Centralized billing services
- Compliance testing and consulting
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Advantages of HSAs
Security – Your high deductible insurance and HSA
protect you against high or unexpected medical bills.
Affordability – You should be able to lower your
health insurance premiums by switching to health
insurance coverage with a higher deductible.
Flexibility – You can use the funds in your account to
pay for current medical expenses, including expenses
that your insurance may not cover, or save the money in
your account for future needs, such as:
- Health insurance or medical expenses if unemployed
- Medical expenses after retirement (before Medicare)
- Out-of-pocket expenses when covered by Medicare
- Long-term care expenses and insurance
Savings – You can save the money in your account for
future medical expenses and grow your account through
investment earnings.
Control – You make all the decisions about:
- How much money to put into the account
- Whether to save the account for future expenses or
pay current medical expenses
- Which medical expenses to pay from the account
- Which company will hold the account
- Whether to invest any of the money in the account
- Which investments to make
Portability – Accounts are completely portable,
meaning you can keep your HSA even if you:
- Change jobs
- Change your medical coverage
- Become unemployed
- Move to another state
- Change your marital status
Ownership – Funds remain in the account from year to
year, just like an IRA. There are no “use it or lose it”
rules for HSAs.
Tax Savings – An HSA provides you triple tax savings:
(1) tax deductions when you contribute to your account;
(2) tax-free earnings through investment; and,
(3) tax-free withdrawals for qualified medical expenses.
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