Consumer Driven Plans

Consumer-driven or consumer-directed health care (CDHC) plans are designed to allow you to have more power over your health coverage and options. CDHC plans are becoming increasingly popular and truly put the consumer in the driver’s seat. Feel more confident about controlling your health coverage with the most common CDHC terms defined below.

Health Savings Account (HSA)

A health savings account is a tax-advantaged account used to pay for qualified medical expenses. An HSA must be used in conjunction with an HDHP. An advantage of an HSA is that the funds remaining in the account at the end of the plan year are rolled over into the account for the next year.

Eligibility
Individuals and families covered by a qualified HDHP and no other health plan that covers the same benefits are eligible. Individuals are not eligible if they can be claimed as a dependent on another person’s tax return.

Who May Fund The Account?
Both the employee and employer can fund the account. Employees can contribute pre-tax dollars through a section 125 plan.

What Plans May Be Offered With An HSA?
HSAs may be offered with a high deductible health plan that meets the criteria below:

Year Minimum Deductible – Single Minimum Deductible – Family
2013 $1,250 $2,500
2014 $1,250 $2,500
Year Out-of-Pocket Maximum – Single Out-of-Pocket Maximum – Family
2013 $6,250 $12,500
2014 $6,350 $12,700

HSA Contribution Limits/Maximums (these amounts do not include any catch up contributions)

Year Single Family
2013* $3,250 $6,450
2014 $3,300 $6,550

*Contributions for 2013 can be made until 04/15/2014.

Eligible Expenses
Section 213(d) medical expenses, including:

  • COBRA premiums
  • QLTC premiums
  • Health premiums while receiving unemployment benefits
  • If Medicare eligible due to age, health insurance premiums except medical supplement policies

Effective 12/31/10, OTC medicine or drug expenses cannot be reimbursed unless they are prescribed or are insulin.

Are Non-Medical Expenses Reimbursed
Yes, but taxed as income and 20 percent penalty (no penalty if distributed after death, disability or age 65).

Is Interest Earned?
Yes, interest accrues tax free.

Federal Tax Treatment of Employee Contributions
Employee contributions are tax-deductible for an individual, even if he or she does not itemize, provided funds are used for eligible expenses. (Note: Some states do not follow federal tax law for state purposes.) If an employee contributes to his or her HSA through salary reduction, the contributions are considered to be made by the employer and are not subject to FICA and other employment taxes. State laws vary for HSA tax treatment.

Federal Tax Treatment of Employer Contributions
Employers get expense deductions for payments. Employer contributions are generally excludable from employee’s gross income.

Health Reimbursement Arrangement (HRA)

A health reimbursement arrangement is a program that allows employers to set aside an amount of funds to reimburse participating employees for medical expenses. The funding account is owned by the Employer. An HRA is often combined with another health plan.

Eligibility
Current and former employees whose employers offer a HRA are eligible.

Who May Fund The Account?
Only the employer may fund the account.

Contribution Limits
There are no IRS prescribed limits for a HRA.

Do Unused Funds Rollover?
Unused funds can be rolled over from year to year, but the funds are subject to COBRA.

Eligible Expenses

  • Section 213(d) medical expenses, including health insurance premiums for current employees, retirees and qualified beneficiaries, and QLTC premiums.
  • Employer can generally define “eligible medical expenses” to be more restrictive than the IRS guidelines.
  • Effective 12/31/10, OTC medicine or drug expenses cannot be reimbursed unless they are prescribed or are insulin.

Reimbursement Substantiation Process
Claims must be submitted to receive reimbursement.

Are Non-Medical Expenses Reimbursed
No, there are no reimbursements for non-medical expenses.

Is Interest Earned?
Yes, paid to the employer.

Federal Tax Treatment of Employer Contributions
Employers get expense deductions for payments. Employer contributions are generally excludable from employee’s gross income.

Flexible Spending Account (FSA)

A medical flex spending account is an account set up through a health plan that allows employees to contribute funds that are not subject to payroll tax. Any unused funds are lost at year-end.

Eligibility
Current and former employees whose employers offer a HRA are eligible.

Who May Fund The Account?
The employer or employee may fund the account. Typically the employee contributes pre-tax dollars through a Section 125 plan.

FSA Contribution Limits/Maximums
Effective for taxable years beginning after 12/31/12, employees may not elect to contribute more than $2,500 per year to a health FSA offered through a cafeteria plan. This amount will increase in future years to reflect cost-of-living increases.

Do Unused Funds Rollover?
FSA funds do not roll over, but in some cases employees may elect COBRA through end of plan year. Unused amounts in FSAs may be used for expenses incurred during grace period of two and one half months after end of plan year.

Eligible Expenses

  • Effective 12/31/10, OTC medicine or drug expenses cannot be reimbursed unless they are prescribed or are insulin.
  • Expenses for insurance premiums are not reimbursable.
  • Employer can define “eligible medical expenses”

Reimbursement Substantiation Process
Claims must be submitted to receive reimbursement.

Are Non-Medical Expenses Reimbursed
No, there are no reimbursements for non-medical expenses.

Is Interest Earned?
There is no interest earned through a FSA plan.

Federal Tax Treatment of Employee Contributions
FSA plans are treated as tax-free.

Federal Tax Treatment of Employer Contributions
Employers pay no FICA tax or federal or state unemployment taxes on FSA contributions.