As an employer, you must make important decisions about employee healthcare coverage.
Among many options are health savings accounts and health reimbursement arrangements. Do you know the difference?
Although these account-based health insurance plans have similarities, employees with health savings accounts (HSAs) are more likely to be aware of the costs of their healthcare services than are those with health reimbursement arrangements (HRAs), according to a recent report by Employee Benefit Research Institute.
Their awareness of healthcare expenses appears to affect HSA participants’ behavior. The report points out that they are more likely to:
- Request generic rather than name-brand drugs
- Check prices before receiving care
- Ask the doctor to write prescriptions for less expensive drugs
- Budget for healthcare expenses
- Use an online tool to track healthcare expenses
The financial aspects of HSAs incentivize participants to be more involved in their healthcare decisions, including the choice of healthcare plans, the report says. As opposed to the participation rate of employees with HRAs, HSA account holders are more likely to have their health risks assessed and to take part in available health-promotion or biometric screening programs.
Participants’ direct involvement in these decisions may stem from certain key aspects of HSAs:
- The participants own their HSAs, which work with high-deductible health insurance.
- The HSAs are portable.
- Participants don’t lose the money left in their accounts at the end of the year because it rolls over automatically to the next year.
- Participants and their employers may contribute to the HSAs.
- HSA distributions are allowed at any time.
- HSA account holders who retire no longer need to be covered by high-deductible insurance to withdraw money from their HSA accounts and can use any money left in their accounts for expenses during retirement.
HRAs work differently. HRAs are healthcare plans funded by the employer. The accounts reimburse employees for their qualified medical expenses.
If money remains in the accounts at the end of the year, the employer may – at the employer’s discretion – allow the funds to be carried over to future years, perhaps giving employees a reason to be careful with their healthcare dollars.
A significant difference between an HRA and an HSA is that the employer may decide not to permit employees to take the funds left in their HRA accounts when they retire or change jobs. Remember that HSAs are completely portable.
HSA healthcare plans, when compared to HRA plans, seem more strongly to affect participants’ use of healthcare services and the cost of each episode of service, the report said.