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Consumer Driven Health Plans: HSA's and HRA's
What is the concept behind Consumer Driven Health Plans (CDHP's)? It is that consumers will make wise and good choices in how they use their health care dollars if, 1) they are given financial incentive (they have some skin in the game) and 2) they are given the necessary health information to make an educated decision.

HSA's and HRA's are a part of the equation of CDHP's, but they are not the entire solution. Because of the new savings vehicle (HSA's) many people are pushing these products without having the in-depth understanding of how they should be set up, who can best administer them, and which plan is best for your needs. Understanding the complete equation and how a consumer driven health plan can help you reach your goals is Innovative Benefit Solutions expertise. Also, an FSA can be offered in combination with an HRA and can be a very powerful benefit. And, significant payroll tax savings can be achieved.

Don't settle for advice from someone who has only read about these programs. You deserve the leading expert in CDHP's, Innovative Benefit Solutions.

What is a Health Savings Account?
A savings account that you use to pay health care expenses. An individual owns and controls the funds. HSA savings roll over every year for your health care expenses and/or retirement. The funds are portable. The power to save money by purchasing a lower-cost, high-deductible insurance plan. HSA funds pay for your qualified and routine health care expenses; insurance kicks in when you have extraordinary health care expenses.

How Does it Work?
HSA’s may be established by any individual who is covered by a health plan with annual deductible of contributions limited to 100% of the deductible up to a maximum of $2,600 for an individual or $5,150 for a family in 2004. Account holders aged 55 and up, may make additional contributions of $500 in 2004 increasing by $100 each year until it reaches $1,000 in 2009.

Key Components:
Contributions can be received by the following sources:

1) Individuals
2) Employers

HSA savings roll over every year for your health care expenses and/or retirement.

Contributions may be made by any combination of employer and individual. Employer contributions are excludable from income and individual contributions are deductible "above the line." That is, a taxpayer does not have to itemize deductions in order to take the contribution as a deduction.

Employers my offer an HAS as part of a Section 125d cafeteria plan.

Individual contributions are tax-deductible, even if the taxpayer does not itemize.

Employer contributions are tax-free.

Family member contributions are made on an after-tax basis.

Investment earnings accrue tax free.

Distributions are tax-free if used for “qualified” medical expenses (all section 213(d) expenses, except health insurance premium payments).

Qualified medical Expenses Include
Amounts paid for diagnosis, cure, mitigation, treatment or prevention of disease.

Prescription drugs and now over the counter drugs, such as aspirin and cough medicine.

Qualified long-term care services and long-term care insurance.

COBRA continuation coverage required by Federal law.

Health insurance for the unemployed.

Distributions made for any other purpose are subject to income tax and a 10% penalty. The 10% penalty may be waived in certain circumstances.

The proposal clarifies that payments to medical service providers through he use of debt, credit, and stored-value cards do not create new reporting requirements for employers.

HAS funds may also be used to pay for retiree health insurance premiums other than Medigap. This includes Medicare premiums.

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