by Tony Novak, CPA, MBA, MT
, revised 5/9/2012
Small businesses that want to adapt consumer-driven health plans usually have two basic options: 1) health savings accounts (HSA) and 2) health reimbursement arrangements (HRA). While these are not the only types of consumer-driven health plans, they are clearly the two most popular and most practical for smaller firms. Although specific data is not available, it can be presumed that these two types of health plans make up the vast majority of small business health plans in force where individual employees are empowered to make spending decisions with regard to their health care choices.
Health Savings Accounts (HSA) are simple and inexpensive but come with a hitch. The rather severe limitation is that federal law requires that HSA plans have a very specific type of health insurance – a type not offered in all states or by all insurance companies. Many people will not qualify for this type of health insurance coverage or will not want to pay the high price for this specific type of health insurance coverage. As a result, few Americans actually have tax-qualified health savings accounts. Much more information on the specifics of health savings accounts is available online at www.healthsavingsaccount-hsa.com. This site offers online enrollment in both the health savings account and the qualifying insurance states covered by Assurant Health and Celtic Insurance. For those who qualify, health savings accounts are a financial blessing. The accounts can be administered for a low fee (usually less than $50 per year) or for free, depending on the service provider. The tax benefits are generous, interest income earned is tax-free and money can build up indefinitely until withdrawal at any time in the future.
Health Reimbursement Arrangements (HRA) plans are more flexible in that they do not require health insurance. But HRAs have their own limitations. The most notable is that most self-employed people are not eligible for benefits. This includes sole proprietors, partners, members of an L.L.C. and owner/employees of S-corporations. One common work-around to this limitation is to give full family medical benefits to the working spouse of a self-employed person. This legitimately allows the owner to be covered by all benefit plans including the HRA. Another limitation is that the HRA plan requires claim verification accounting by a third party not connected to the employer. As a result, HRA plans are somewhat more expensive to operate because of the occasional use of an outside auditor.
More information about simple low cost HRA plans for small businesses can be found online at www.freedombenefits.org. Freedom Benefits offers low cost assistance on demand with setup and administration of HRA and other small business benefit plans. Setup can typically be completed in one or two business days.
Both types of consumer-drive health plans should include well-drafted written documents defining and explaining the benefits to eligible employees. The value of personal professional support for the employer and the employees goes without saying. Both types of health plans should also take full advantage of PPO network pricing for medical services. Members of either type of plan that pay cash for medical or dental expenses should enroll in a discount plan like www.ehealthdiscountplan.com to stretch the value of benefit plan dollars as far as possible.
The end result of either type of health plan should be a higher level of employee satisfaction, more benefits received from health insurance as a percentage of premium paid and overall lower health insurance costs. Unfortunately, none of these consumer-driven health plans adequately address the underlying issue that many small businesses cannot afford even the least expensive group health insurance, so an increasing number of employees at small firms continue to go uninsured or seek out low cost or limited coverage individual health insurance plans at www.BasicHealthInsurance.net.
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Opinions expressed are the solely those of the author and do not represent the position of any other person, company or entity mentioned in the article. Information is from sources believed to be reliable but cannot be guaranteed. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Tony Novak operates as an independent adviser under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator" but is not a representative, agent, broker, producer or navigator for any securities broker dealer firm, federal or state health insurance marketplace or qualified health plan carrier. He has no financial position in any stocks mentioned. Novak does work as an accountant, agent, adviser, writer, consultant, marketer, reviewer, endorser, producer, lead generator or referrer to other companies including the companies listed in the articles on this web site.