PLANSPONSOR 2024 HSA Conference: Medical Account Alphabet Soup

Employers should determine the company’s objectives before selecting health care coverage benefits to offer employees, according to panelists who spoke at PLANSPONSOR’s HSA Conference last week.

For sponsors, selecting health benefits to offer employees from the various medical account offerings—including health savings accounts, flexible spending accounts and health reimbursement arrangements—depends on what the employer is trying to achieve and their employee population, explained Dillon Castro, a benefits consultant at AEIS Advisors.

Different benefits “have different segments of your population that they might appeal to and they all obviously operate very differently,” he said.

Forming relationships with benefits brokers, ERISA attorneys and retirement plan recordkeepers will support employers as they work to sort through the medical account alphabet soup. 

HRAs

An HRA is a type of account-based health plan in which employers reimburse employees for their medical care expenses, up to a fixed dollar amount per year.

Sponsors use HRAs “usually” to “pump up the benefits, if you will, in a cost-effective manner,” added Castro.

“The idea is that the HRA is going to reimburse employees in such a way that as far as they’re concerned, their out-of-pocket costs at the end of the day are going to look more like a gold or platinum [health care plan] so colloquially we’ll talk about, ‘it’s like turning bronze or silver into gold or platinum,’” he said.

Employers also use HRAs to lower health care costs, added Chris Lockman, a partner in the employee benefits and executive compensation practice group at Verrill Dana, LLP.

“The HRA in a lot of ways is like a training wheels step towards getting to some degree of what’s called ‘self-funding,’ [because] you are as the employer, making a calculated assessment of, ‘hey, we think that we can essentially lower everybody’s cost both our employee’s and us as an employer by setting up this plan,” he said.

Sponsors with “a healthier population [of workers], they’re not using those funds necessarily, and so the cost of the plan ends up being reduced or there ends up being savings ultimately, whereas if people do need to use it, it’s there,” added Lockman.

The IRS offers guidance details on the use of HRAs.  

Retaining attorneys who understand the inner workings and can negotiate details of the Employee Retirement Income Act Security Act is crucial to sponsors offering health benefits, HSAs and FSAs, Lockman said. 

HSAs and FSAs

FSAs are a type of account that allows individuals to set their own money aside pre-tax to be used for certain out-of-pocket health care costs.

The rules for FSAs are more restrictive than for HSAs. And unlike HSAs, which are not FSAs are subject to ERISA, “mean[ing] there’s an annual filing requirement in their claims procedure, document requirements and they don’t go with you if you leave the employer,” explained Lockman.  

With few exceptions FSAs also carry “a use or lose requirement—so if you’ve elected to contribute a certain amount each year…and with two exceptions, you will lose any unspent balance at the end of the year, he said.

HSAs are a type of savings account—that require participation in a high-deductible health plan—allow contributions on a pre-tax basis to pay for current qualified medical expenses and for such expenses in retirement.

Providing HSAs, sponsors may be able to partner with their existing retirement plan recordkeepers as “the 401(k)and other retirement plan recordkeepers [are] getting into the HSA space,” said Brea Dantin, chief operating officer at MJ Retirement and the panel’s moderator.  

For sponsors, offering multiple options “the primary thing that we are worried about when you have multiple options are the potential for eliminating someone’s eligibility to make contributions to an HSA,” Lockman explained.

HSAs are sometimes conflated with flexible spending accounts, but the benefits work differently. 

“You don’t have to be enrolled in a high deductible health plan to participate in [an FSA], but they are subject to a lot of different rules and restrictions,” said Lockman.

Sponsors who are offering “an HSA or FSA [must consider] there needs to be, I think, a level of engagement from the employer and the employees: for the employees’ part they have to understand how they’re going to best leverage it and for the employer, how to get the employees invested both literally and figuratively.”

Contributions to HSAs are disallowed if someone is also “enrolled in a general purpose, health FSA or a general purpose HRA,” said Lockman.

“You can contribute to an HSA if you are enrolled in a limited purpose health FSA or HRA—and limited purpose means reimbursement for only vision and dental expenses,” said Lockman. Individuals “also can [receive] reimbursement for preventive care screenings and immunizations, but that’s very rare because it’s so hard for the administrator to tell what’s preventive care and what’s not at that level.”

A full recording of the webinar can be watched on the PLANSPONSOR website.