Making decisions regarding the options and offerings an employer will make for employees can be somewhat complicated. That is largely because no two people are the same, and not all employees have the same health coverage needs.
Among the several options available for small group health care coverage, there the most common choices of health plans are:
- Preferred provider organization (PPO) plan
- Health maintenance organization (HMO) plan
- Point of service (POS) plan
We have discussed the specifics of these popular health plan types in previous articles, but to summarize, a PPO, or Preferred Provider Organization, is a type of health plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers. You pay less if you use providers that belong to the plan’s network.
An HMO, or Health Maintenance Organization, is a health insurance plan that usually limits coverage to care from doctors who work for or contract with the HMO. It generally won’t cover out-of-network care except in an emergency. In addition, an HMO may require you to live or work in its service area to be eligible for coverage.
And a Point of Service (POS) plan is a plan that allows you to pay less if you use doctors, hospitals, and other health care providers that belong to the plan’s network. POS plans also require you to get a referral from your primary care doctor in order to see a specialist.
But employers can also consider offering what are known as HSAs, or health savings accounts.
UNDERSTANDING THE ROLE OF A HEALTH SAVINGS ACCOUNT FOR EMPLOYEES
In addition to the more “traditional” types of health coverage plans that most people are familiar with, a health savings account is an alternative that you, as an employer, can make available to your workers.
According to the Heatlhcare.gov website, an HSA is,
“A type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs. HSA funds generally may not be used to pay premiums.”
While employees can use the funds in an HSA at any time to pay for qualified medical expenses, they may contribute to an HSA only if you have a High Deductible Health Plan (HDHP) — generally a health plan (including a Marketplace plan) that only covers preventive services before the deductible.
Most often, the strategy utilized by those wishing to use an HSA is to manage their healthcare expenses by enrolling in a High Deductible Health Plan (HDHP) and opening a Health Savings Account (HSA).
An HDHP is simply a plan with a higher deductible than a traditional insurance plan. While the monthly premium is usually lower, an employee will pay more health care costs out-of-pocket – their deductible – before their insurance company begins to pay its share.
Typically, a high deductible plan (HDHP) is combined with a health savings account (HSA), allowing an employee to pay for certain medical expenses, excluding their premium with untaxed funds.
THE PROS AND CONS OF AN HSA FOR YOUR EMPLOYEES
As noted here, a Health Savings Account is a tax-advantaged savings account used to pay for medical expenses. It is typically only available to individuals with high-deductible health plans and is designed to help those individuals pay for their medical expenses while saving for future medical expenses.
While HSAs are becoming more popular as people look for ways to manage their healthcare costs and reduce their tax burden, some pros and cons should be considered before opening one.
On the plus side, an HSA offers these benefits:
- Tax advantages: Contributions to an HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free. This means that employees can reduce their taxable income and save money on taxes.
- Savings for future medical expenses: HSAs allow workers to save money tax-free for future medical expenses, which can be especially valuable if they have a chronic condition or expect significant medical expenses.
- Flexibility: Unlike various other healthcare savings accounts, HSAs have no deadline for using the funds. This means that the funds “roll over” from year to year so workers can use the money they save for medical expenses at any time, even if it’s years from now.
- Portability: HSAs are owned by the individual, not the employer, which means that an employee can take the HSA with them if they change jobs or leave the workforce.
On the downside, HSAs have some potential negative attributes to be aware of:
- High-deductible health plan requirement: In order to contribute to an HSA, an employee must also have a high-deductible health plan (HDHP). HDHPs can be a good choice for healthy individuals who don’t anticipate high medical expenses, but they may not be the best choice for those with chronic conditions or who anticipate high medical costs, such as elderly workers.
- Contribution limits: There are limits to how much an employee can contribute to an HSA each year, and those limits are lower than some other healthcare savings accounts.
- Penalties for non-medical withdrawals: If a worker withdraws money from an HSA for non-medical expenses before age 65, they’ll have to pay taxes on the withdrawal plus a 20 percent IRS penalty.
- Limited investment options: Some HSA providers limit the investment options available for HSA funds, which may limit an employee’s ability to grow their savings.
The bottom line here is that while HSAs can be a valuable tool for managing healthcare costs and saving for future medical expenses, they are not right for everyone.
If you are considering offering an HAS option for your employees, be sure to evaluate the pros and cons carefully by speaking with a financial advisor or professional health insurance broker to determine if it is the best option for your company.
MAKE THE RIGHT CHOICES FOR HEALTH INSURANCE WITH J.C. LEWIS INSURANCE
JC Lewis Insurance is a long-time, family-owned firm of expert brokers and is based in Sonoma County. We offer California health insurance plans only from leading health insurance carriers that are licensed to do business in California.
And we are licensed and certified by each of these insurance carriers to offer coverage to small group employers, along with Medicare supplemental and prescription drug plans for seniors.
If you are self-employed or you’re an employer that does not currently offer employee health benefits, there are many options available for your workers as well as for you and your family. So, whether you’re deciding between an HMO plan, PPO plan, or even an HSA/HDHP, we’ve got your back.
When shopping for medical insurance for you and your family, you will likely have several questions and concerns. That’s great because we welcome your questions about health coverage insurance, and you can be confident that JC Lewis Insurance Services will help you find the right solution.