Health Savings Accounts, or HSAs, and Health Reimbursement Arrangements are generally used in conjunction with high-deductible health plans (HDHPs). As the name implies, these plans often have higher deductibles than managed care plans. All fall under the umbrella of Consumer-Driven Health Plans (CDHPs), an alternative to managed care plans. Consumer-driven plans encourage individuals to become more involved with their health care choices.
Health Savings Accounts
HSAs are tax-exempt accounts established to help pay for medical emergencies and treatments. Individuals and employers may contribute to the HSA up until a maximum contribution has been reached. HSAs can be used to pay for all qualified medical expenses not covered by your high-deductible insurance.
Health Reimbursement Accounts
HRAs are employer-funded accounts that when combined with a high-deductible health plan, reimburses employees for certain health care expenses.
Employers pay a potion of health expenses until a cap is reached, which is when the insurance plan picks up the remainder. You will pay a percentage of your expenses until your maximum out-of-pocket amount has been reached, after which the plan pays all claims completely. Some employers allow unused HRA funds to be rolled over from year to year. Unlike HSAs, no separate savings account is involved.
HRAs tend to resemble more typical insurance plans. HSAs place more responsibility on the individual, requiring you to decide what health expenses you feel are worth paying for.
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Advantages and Disadvantages
Proponents of HSAs feel that HSAs combined with HDHPs will encourage individuals to take greater financial interest in their health care than traditional plans do. Ideally, small expenses will come from the HSA and emergencies will be covered by the insurer. By giving you this responsibilty, they say, you will make cost-effective decisions (such as generic versus brand name prescriptions) that will keep premiums down for everyone.
Oponents argue that individuals lack the information to make well-informed choices about medical expenses and also feel that people may be scared off by cost factors. They worry the focus may be taken off preventative care and that many individuals will not seek treatment until they are in severe pain or in need of an expensive procedure.
Who benefits from HSAs/HRAs?
If you are young and generally healthy and feel that you make good choices concerning health care, you may enjoy the low premiums HSA plans can offer while enjoying the security of knowing you will be covered in an emergency situation. However, if you require many doctor visits, prescriptions, or medical treatments, you may find yourself burdened by the costs or stuck in the “coverage gap” (the amount between what you would pay out of your HSA and your deductible). Many people with HRA coverage report no less satisfaction than with traditional plans.
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