Increasing costs can often inspire creativity among business owners. Many are now reassessing not only where they buy their health insurance from, but also how they buy it. It is important, however, to carefully consider the pros and cons of the different solutions available.
What is an HSA (Health Saving Account)?
An HSA is a type of savings account that allows you to set aside money before taxes to pay for qualified medical expenses. By using tax-free dollars from your HSA to pay for deductibles, copayments, coinsurance, and other expenses, you may reduce your out-of-pocket healthcare costs. However, it is important to note that you cannot use HSA funds to pay for insurance premiums.
You can use the money from your Health Savings Account (HSA) to pay for qualified medical expenses when needed. However, you can only contribute to an HSA if you have a High Deductible Health Plan (HDHP). This type of health plan, which can include a Marketplace plan, provides coverage for preventive services even before you reach the deductible.
How can a high deductible plan lower costs?
Enrolling in a high deductible plan can result in a lower monthly premium. This means that a person will have to pay more for healthcare services and items before the insurance plan begins covering the costs. However, if you have an HSA-eligible plan and an HSA, you can use your tax-free HSA savings to cover the deductible and other qualified medical expenses such as copayments and coinsurance.
- If you have an HSA-eligible plan and do not need many healthcare items and services, you may benefit from the lower monthly premium.
- Your HSA balance rolls over year to year, so you can build up reserves to pay for healthcare items and services you need later.
What is considered an HSA-eligible plan?
HSA-eligible plans have a set minimum deductible and a limit, or maximum, on out-of-pocket costs for both individuals and families.
- The minimum deductible is the amount you pay for health care items and services per year before your plan starts to pay.
- The maximum out-of-pocket costs are the most a person will pay per year.
It’s always a good option for those who want to keep premiums low. However, it may mean paying for medical costs upfront in general.
What is an HRA (Health Reimbursement Arrangement or Account)?
An employer can provide a plan that reimburses employees for medical expenses that are not covered by the company’s standard insurance plan. This is an excellent option for companies that want to keep premium costs low and want to assist employees in covering medical costs before or after insurance.
How does a Health reimbursement account work?
Your employer owns the HRA and sets it up for you. It is a different arrangement than a flexible spending account or health savings account when you contribute money.
- Your employer sets the rules and decides the amount. You are not allowed to make contributions to your HRA.
- Employers use HRAs to cover out-of-pocket medical and pharmacy expenses, including deductibles and co-insurance.
- Your reimbursement for eligible medical expenses is not considered taxable income. You usually receive the full amount and do not have to pay federal or state income taxes on the money.
- An employer can allow unused HRA funds to roll over from year to year, but it is not required. If you leave your employer with unused funds, they may keep the money.
What can you use your HRA funds toward?
The IRS determines what is considered a qualifying medical expense. Your employer will define what is eligible for you based on your plan. If you want to be reimbursed for any qualified expenses, you or your eligible family members must purchase items or services during your HRA plan’s coverage period.
Here are some examples of the types of expenses you may be able to get reimbursed with an HRA:
- Some insurance premiums
- Health insurance deductibles, coinsurance, and copays
- Medical, vision, and dental expenses
- Pharmacy expenses
What is a MERP (Medical Expense Reimbursement Plan)?
A Medical Expense Reimbursement Plan (MERP) is a benefit plan sponsored by an employer to help employees cover their eligible medical expenses. This type of reimbursement plan allows employees to receive reimbursement for their out-of-pocket medical costs that they incurred during the plan year.
You can offer a medical expense reimbursement plan alongside or instead of a group health insurance plan for primary health benefits.
Employers can customize the MERP to their needs by setting contribution amounts, eligible expenses, and reimbursement processes.
What expenses can a MERP reimburse?
A MERP is a medical expense reimbursement plan that can cover any expense that the IRS considers a qualified medical expense. This includes the premiums for individual health insurance policies. However, businesses have the freedom to restrict the list of reimbursable eligible expenses as per their preference.
Some of the most common reimbursable items include:
- Health insurance premiums
- Dental expenses
- Vision care expenses
- Hospital care
- Prescriptions
- Health plan deductibles
Overall, there are a lot of options out there for health insurance now. That is why you must have someone to help you look at and weigh all the options.