Health Enrollees May See New Plans
The typical employee welcomes the open enrollment season with as much enthusiasm as he or she would a documentary chronicling the life cycle of a garden slug. Too many employees – 60 percent, according to a survey conducted by Hewitt Associates – don’t bother to study their options and do nothing at all during this time. This forces their employers to sign them up for what they had the previous year. This year, however, may be a little different.
The number of large employers that will introduce consumer-directed health plans (CDHPs) this year went up sharply to 20 percent, from 14 percent last year, according to Mercer, a firm specializing in employee benefits. In fact, some large-employer clients that had previously considered launching CDHPs within the next three to five years will implement them in 2010, says a consultant with Towers Perrin.
Like it or not, it’s time to grasp the basics of CDHPs and Health Savings Accounts (HSAs).
CDHPs are a broad range of health plans that allow their members to use personal HSAs to directly pay qualified medical expenses. The idea behind a CDHP is that employees will act more judiciously, like consumers, comparing health care quality and costs, and negotiating lower prices. Because plan participants are spending their own dollars for health care, it also discourages unnecessary utilization such as emergency room visits for nonemergency care.
An HSA is the most common account under a CDHP, which may also offer Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs).
The HSA is set up in conjunction with a high-deductible health plan (HDHP). Members must be enrolled in an HDHP in order to set up an HSA. Annual HSA contributions are used by individual and covered family members to pay for the cost of the deductible, out-of-pocket expenses and any other qualified expenses. In 2010, employees will be able to set aside as much as $3,050 in an HSA for individual coverage and $6,150 for family plans. Employees over age 55 can also make increased payments until they reach Medicare eligibility.
The funds contributed by the employer and the employee to the HSA are not subject to federal income tax at the time of deposit. The account is owned by the employee and can be used to pay for qualified medical expenses at any time without federal tax liability. HSA funds not used within a calendar year stay in the account, where they earn interest and can be accessed for future use.
The legal and tax information contained in these articles is merely a summary of our understanding and interpretation of some current provisions of tax law and is not exhaustive. Consult your legal or tax advisor for advice concerning your particular circumstances.